Builder Charging More for Construction

Hi

We brought a house and land package in Sydney. The land was registered and we signed the contract for the building for a value of $410k. The construction started last year in November (2021). The invoices were raised and the payments have gone through the bank as well. The construction was delayed due to COVID but now we are in the brick & roof stages for which the invoice is also raised. Two days earlier the builder has sent an email stating that there is going to be an increase in the contract price by 10% which means $40k increase.

My question is, is this possible? I understand that there is price increase off late but for us the building materials were all ordered last year the invoices raised and paid.

We did not go for Fixed price contract. But with that said there is a clause in the contract for price rise and fall as well. The contract favours the builders a lot and if we go and handle this legally it is going to be a long process. We are already paying the mortgage and also the rent. Its too much for us to handle at the present moment.

Can you please pour in your insights on this. Thanks

Comments

  • +118

    So your contract says the price can rise and the price has risen?

    • +17

      And the logical thing is to complain..

      It’s like agreed value vs market value on your insurance. You can’t have it both ways!

      • +12

        Its not complaining rather trying to find if its right on the builder to increase the price for something which he has already charged me and for which i have paid. In simple terms i buy a tv last year for which i have paid the full amount but now the dealer is coming back to me after 5 months and stating that there is 10% price increase and can i have it? does this sound right to you

        • +23

          It might be the costs of their labour (subcontractors etc) that have gone up. Hot property market = lots of construction activity = construction labourers in high demand.

          https://www.commercialrealestate.com.au/news/building-costs-...

          • +1

            @toomuchdogfur: Thank you

            • @Coove: The flipside is builders just give up and take the loss and not finish houses. They cant make losses and continue to work.

          • +40

            @toomuchdogfur: Absolutely everything has gone up and in many cases massively. The fact they've only increased the price 10% is a bargain frankly when some materials etc have gone up 300%.

            OP, if you wanted to lock in the price you should've done that in the contract but by your own admission it wasn't a fixed price contract. Sucks I know, no one wants to pay more but that's reality.

            • +3

              @apsilon: spot on ^

            • @apsilon: The price of materials can go up to 500%, that still shouldn't affect OP as they have already paid for them.

              • +1

                @magic8ballgag: Yeah doesn't work that way even if the full amount was paid up front. Materials and labour are both brought in in stages. Where do you think a builder is going to keep an entire house worth of material? If you want to lock in the price you don't go with a variable price contract.

                • -1

                  @apsilon: I may have misunderstood what the OP meant, but after reading it again, it sounds like they have only increased prices for the building phase that they are currently at, and not previous stages that they have already paid for.

              • @magic8ballgag: Yeah doesn't work like that. From prelim estimate to actually building could take 2 years.

            • @apsilon: Frames and trusses gone up over 100% in 1 year.

              I know it's bad. We get price rises every few weeks.

              I am an estimator for the construction industry.

          • -1

            @toomuchdogfur: Yep. A neighbour was quoted $35000 for a swimming pool. No contract. Pool builder arrived and said the price had gone up by $20000!! Lots of work = BIG price hikes (gouging!).

        • +1

          Building a house and buying a TV are not the same thing. Why didn't you choose to go the fixed price contract route?

          • +3

            @Abstractium: Probably the same reason anyone doesn't go that route, because they charge an extra 200k as a buffer

        • I get what you're saying about things already purchased (if lumber was purchased pre-price rise eg), but the problem is you went with a variable contract. Sure, the money you paid previously might have covered the materials, but you've still got labour to consider, as well as any consumables or additional materials as the build continues/completes (say they had the lumber for roof/walls, but not drywall or tiles/floorboards)

          Given the market I don't think it would be hard to justify the 10% rise as just the value of labour went WAY up due to Omicron, and things yet to be bought increasing. I get that its nasty when you get caught out, but that's one of the perils of going for variable over fixed contract. I empathise with you over the extra costs, but I don't think you have any recourse for this particular issue. You might be able to talk to a lawyer, but given you went with a variable contract, I dont think you have much of a case.

          I'd make sure that the builder confirms, in writing, that this is the only increase and there will be no others. With the way things are going I wouldn't be surprised if you got hit with another 5-10%.

          • +2

            @Intoxicoligist: Nothing was purchased at the signing of contract. Nothing. Unless the OP paid the full contract price in advance. Additionally, where is the builder supposed to store the materials for a year? Sure the timber can be delivered on site but it won't last and if it does, it's because the timber now resembles a banana.

        • -1

          The comparison you gave is not good- you have already purchased the tv with the building the builder did not purchase the building materials at time contract was signed nor already pay for trades services. Your clearly state that in your contract there is a clause for price rise.

        • +5

          You didn’t buy a TV. You contracted someone to build you a house. Without reading the contract - we can’t tell you what your contractual rights and obligations are - this scenario is certainly not an uncommon one in home builder contracts and is potentially legal if that’s what you agreed to. If the contract included provisions for cost of the build to change, it sounds like the builder has just exercised those provisions and there’s a fair chance you’re on the hook.

          Either pay the builder, pay a lawyer or learn to read contracts. Personally I probably would have run that contract past a lawyer before signing it and have expected them to explain the circumstances in which I was likely to see a major price variation, and I’d be having a fairly heated call with them if this scenario hadn’t come up during that conversation.

        • But they have not charged you have they? I'm not sure about the size of your builders but companies do operate on just-in-time logistics and they might not have materials on hand for your build.

          They could have mentioned to you in simple terms as a 10% increase on your contract price but it could just as well be a 40k increase on the rest of your stages.

      • +5

        A newbie who has not read up on this happening all over OZ due to covid issues (tradie shortage, transport delays, lack of international shipping, etc etc).

        • Sorry to say that you have not read my post completely. I have clearly stated that i am aware of the price increase in the market.

          • @Coove: Answering the "My question is, is this possible? "

          • +5

            @Coove: Then what is the question? Your contract states that they can pass on costs if they have rises. Costs have risen, and they are passing them on.

        • +7

          Also he has just entered the BIGGEST PONZI SCHEME the WORLD has ever seen.

          • +4

            @askme69: At least this ponzi scheme is tangible. Unlike gold, dollars, bitcoin, or Enough Teas.

            • +1

              @Kangal: Bitcoin is worse than tangible. It’s extending the life of coal power stations that would otherwise have been shut down permanently.

    • +2

      Yeah… Do you really think the builder was ever going to use the "price could fall" part of that contract once you had signed?

      I feel sorry for you mate, but looking now it's pretty obvious that clause was only ever going to be used in one direction.

    • +3

      So OP has answered their own question

      "We did not go for Fixed price contract. But with that said there is a clause in the contract for price rise and fall as well"

      End of discussion

  • +6

    I wouldn't think you have much legal grounds to stand on anyway, sounds like you signed a costs plus contract meaning it may have been cheaper than your traditional fixed priced building contract but always runs the risk of materials/costs increasing down the track

    • hi thanks so much for looking into my query and your feedback. As i have mentioned i do understand that there is price increase in the market, but my query is more isolated towards the price increase for something which is already paid for. If there is a price increase the builder should have let us know before laying the slab or the frame or before laying the bricks. You cannot charge someone for something which you have already sold and got the payment for. And these materials were ordered last year and the invoices raised and paid already. You can charge me more for something i am yet to purchase but not for already purchased.

      • +13

        From reading just what you posted , you knew that the price was variable (could go up or down) you knew that there was a fixed price option but did not go for it.

        Sounds like you knew and agreed to the terms and are just unhappy that things went up in cost? You went into a contract with a variable price clause, so yes it's fair to have to pay more if there are increased cost.

        • +3

          This is the perfect answer.

        • Its not about fixed price contract or variable contract. I just want to know if the builder can charge me for something for which i have already paid for. The fixed term contract also has its cons and with fixed price contract there are possibilities for the builder to charge more as well.

          • +8

            @Coove: Yes , this sounds reasonable, prepaying a contract would not exempt you from any additional cost clause ( being that the additional cost clause is reasonable which this sounds to be)

          • @Coove: It'll depend on the contract.

            Does the terms of the contract state that the price cannot change once payment has been made? If not, you're likely to be stuck with the terms of the contract that say that the prices are variable.

          • +2

            @Coove: So did you ask the builder about the breakdown of the increase? For your own sanity I guess?

            • @mountaineer: Is there any mention of when the building has to be complete by?

              You can always negotiate but if there isnt, you may have some "delays"

  • +1

    It really depends on your contact terms. If there is a clause in the contract for a price increase, then I don't see why they can't do that.

  • +5

    If the contract says it can, then it can.

  • +8

    My insight is that it looks like the consequences of your actions are occurring.

  • You can pay or go Legal on them.

    Are their terms in the Contract that are materially unfair or unclear?

    • +3

      Its the standard HIA contract and there is one clause which states there can be price rise or fall. Nothing more than that. Again my question is more towards if the builder can charge for whatever he has already delivered and for which i have paid in full. You can charge me more for something which i am yet to buy and pay but not for something which i have already bought right?

      • +8

        Can you elaborate on this because your comment doesn't quite make sense?

        Because your contract is based on progress payments. Just because you paid a 5% deposit or you have paid 10% for the slab it does not mean you have paid for materials such as tiles, timber, kitchen, bathrooms, lights etc. Unless the slab is complete and then the builder is charging you 10% more for the slab 2 months later.

  • +5

    I suggest you get your contract reviewed a lawyer who familiar with construction contracts in NSW.

    To be fair to the builder, the increase doesn't sound like scam (but the % may be). Materials and labour have increased by 20% in the past 12 months.

    So if you're half way through the build, the remaining half may increase by say 20%, which, is takes the increase to 10% overall.

  • +3

    How much more expensive was the fixed contract in the first place?

  • +3

    Ask for a breakdown of what the additional cost is for. If you're unhappy, talk to a lawyer, not the internet.

    The contract says the price can rise and it went up, unless there's something unreasonable in why it went up I can't see why that's a problem.

    • The plan is to get myself prepared better before i go to the solicitor. The forum is an amazing place to get different perceptions and ideas. I know that i would be hit left right and centre but to save hard earned money its the best bet i can take. But thanks for your inputs. We would be asking for the break downs and take it from there.

      • +2

        How much more expensive was the fixed contract in the first place?

        • +1

          it was around 50K

          • +13

            @Coove: So you're still $10k better off than with the fixed price contract. Seems like it's still worked in your favour to me.

          • +1

            @Coove: yeah sounds about right, that's the whole point of the different types of contract, as far as the materials go that they are already paid for, are you sure, just because you have paid in full and given the money to the builder, it doesn't actually mean that the builder has taken that money and bought the materials yet, that is sort of the point of the 2 different types of contracts, the fixed one is higher but you can not be charged anything extra even if the builders costs go up, but the other one gives you a cheaper rate that is subject to change, basically you are rolling the dice with variable, its like getting a home loan with fixed vs variable, basically you chose to gamble, you rolled the dice, and it didn't come out in your favor, i doubt you will get out of this extra cost because that is the system you chose, i wouldn't look at it as spending another 40k, i would look at it as saving 10k

    • If you're unhappy, talk to a lawyer, not the internet.

      I alway see this snarky comment. What is the point of it. Clearly OP wants to hear the opinion of others, maybe hear from someone who has gone through the same experience and then make the decision.

      • You always see it because it's not a snarky comment, it's meant to be common sense advice.

        Ultimately the opinion of others is worth basically nothing. OP has gotten a range of differing opinions and had someone come in with real experience no two cases will ever be exactly the same. As someone who has a lot of contract experience, I wouldn't weigh in because I haven't read the contract and I'm not qualified to give legal advice.

        • wouldn't weigh in

          Ok that is your choice but if you cannot be the part of a solution then dont be part of the problem, your snarky comments dont help.

          Others are happy to share their experience. No one has said that the cases are exactly the same but OP gets different viewpoints which might or might not help.

  • +9

    You say all the items have been paid for, which I understand you think that its unfair because how can they increase the price to you when its already been bought.

    The issue is really what was the price they budgeted for when they quoted the job to you. Without that detail you dont know if they have arbitarily increased the price.

    They like many might have just absorbed this cost initially, but as other items started going up, they then caught up on the cost increases. Plus rather than increase the price each time say the bricks went up and a few days later the framing went up etc, they have just increased the price in one hit. Also they may be allowing for further price increases to come. I heard Tile prices are going up substantially.

    Maybe talk to the builder and ask them to show how they got this increase and ask if it covers any further increases etc.

    Lots of building products have increased quite a lot in the past few months, plus costs of labour, as tradies have far more work than they can do. I waited 6 months for my roof to be replaced, as my friends were so busy and doing it as a favour, so I waited for the free time (and cost savings because i waited).

    Your builder may have had to pay more to get the Tradies to work on this project otherwise they would go elsewhere, supply and demand etc etc. They dont do all the work themselves

    • +3

      Thank you for explaining it so well without hitting me hard like some of the others. Appreciate it very much.

    • +1

      Same here with my roof replacement. Mates of mine were builders, I got him to do the job for me.

      Initially it was quote a job for 2 people. Covid delays backlog of more profitable jobs than mine. Eventually he told me to do remove the roof myself and he would swing by in the afternoon to help me fit the new colorbond sheets on. And i gave him a few cases of beer and dinner bbq feeds.

      • +1

        Good bribe and it worked. it probably saved you allot more than the beer and BBQ in teh long run to get it done sooner with the prices still going up.

  • +3

    I love the part OP you say prices may fall in the contract as well hehe .
    Pigs might fly too .

    • +2

      lol. thats the saddest truth. If there is ever a decrease in price the builders will never share that.

      • OP, with your next build have your lawyer removed in the contract the part that saids price may go down and up. Happy days.

  • Try to negotiate only a 10% rise on what is yet to be built/ bought/ installed?

    • Thank you

  • -1

    Big contract means lawyer time. Would you spend $1000 to complain about a $500 phone? What about if it was $400,000?

    Protip: Lawyer up in future for big contract. Don't accept any big contracts without changes from you.

    • +1

      What do you expect a lawyer to have done? It’s a standard HIA contract which heavily favours the builder. In my experience building 10 years ago, no builder was keen to amend the contract because a lawyer felt it wasn’t fair. And I certainly doubt in this environment a builder would bend over backwards to secure a $420k construction contract. The way building works is you either accept their terms or you walk away.

  • My neighbor did a knock down rebuild and is waiting till June- August for the concrete guys to come in and put down his driveway to get the final tick of approval from the council. So he can get the OC certificate

    The house is finished but no workers to lay concrete.

    If you want your house to be built better pay up.

    • +1

      Tough council.

      What council requires a driveway for a Certificate of occupancy?

      A planning permit may require one for subdivision, but driveaways and landscaping usually doesn't affect Certificate of occupancy.

      • You have to replace the access from the road to the house because it gets damaged from the trucks entering in and out.

        It's a way to have damage of the footpath etc the owners responsibility not the council so they hold up the issuing of the OC.

        • +7

          ahhhh ok… that's not a driveway, it's called crossover or vehicle crossing.

          • @JimB: Yup sorry cross over. I was thinking the whole stamped driveway they were after

            • @George Washington: I guess it may as well be. Sure the council only requires the crossover to be fixed, but who is going to pay to have the crossover fixed without getting the rest of the driveway done at the same time? You'd probably have to be desperate as it will end up costing a lot more to have it done twice.

              • +1

                @macrocephalic: Yup and having the job done once would be better for the concreter then having to separate the job into two price points. Once the mesh in place doing the pour is the easy part.

  • +1

    I am guessing that you likely pay upon completion of the stage - this would mean your first invoice would be for site works and pouring of slab.

    The builder nearly always front the cost first and only claims upon completion? Not sure why you would think you have paid for stuff prior?

    • i completely understand your point. But my question is the builder put the slab in November and i paid for it in November itself. Its now February and you come and charge me more for the slab which is already laid and paid for. Does that sound okay to you? please guide me if what i think does not make sense.

      • +1

        Sorry, what you just said doesn't make any sense to me.

        Slab laid in November and paid in November.

        Brick and roof stages done subsequent which are then charged in February?

        I don't see how they are charging you for the slab again. It is a 10% increase against the total contract price but will only apply to the subsequent stages.

        It would have been clearer if they had said they are increasing the total cost by $40K but the end result is the same.

        I've got a feeling this will not be your last increase given the general construction situation.

        • Yes. The slab was laid in November and paid. The next was Frame in December which is already paid for. Now we are in the brick and roof stage, bricks are half way up for which we have got the invoice already early this month. But just two days earlier the builder is sending an email asking for the change in prices. As i have mentioned i understand that there is demand and price increase but i am still not clear as to how they can charge more or extra for something which is already done and dusted.

          • +8

            @Coove: The pricing structure originally came from the first quote and contract and it was subject to change, then between the time of signing the contract and the laying the slab and doing the framing the prices went up, the amounts you paid were not specifically for the laying of the slab and the framing, they are just set times that you pay certain percentages of the overall cost of the project, so that the company building your house can pay certain contractors, those amounts were not you paying the total amounts of the jobs getting done at the time(slab & framing), they were installments from the total cost, you haven't already paid for the slab and framing, you have paid obligatory installments from the total, then at the end of the build you pay what is left owing, so you have to stop thinking of it that you have paid for these jobs already and they are raising the price after, that is not what is happening, you have paid installments, not the total cost of these jobs

            • +1

              @Qazxswec: Exactly! Percentages paid at various stages is not equal to the cost of the stages.

  • +1

    IANAL

  • +1

    Most residential property builds are open to price increases and you're in the builder's hands. In gov we get our lawyers to write up contracts that are fixed costs, we wouldn't accept open ended contracts.

    The builder will be willing to play hard ball and get variations for price increases knowing you won't want to increase costs by getting lawyers involved.
    You can push back asking to justify but 10% in this market is acceptable given the headhunting going on in getting tradies.

    What i want to know is when this all blows over what happens to the construction industry without subsidies and stupid amounts of stimulus.

    • In gov we get our lawyers to write up contracts that are fixed costs, we wouldn't accept open ended contracts.

      So you don't work for the Victorian government then

    • +3

      If you are actually in gov - you don't have anything to do with contracts!

      The larger the contract the more likely it is to have rise & fall terms - and be enforced by both parties. Larger still and it will often be a PPP (public-private partnership). Even if it is fixed price, the contractor will have set things up to sting you a little on anticipated variations!

      • … So being a contract manager has nothing to do with contracts?

    • In gov we get our lawyers to write up contracts that are fixed costs, we wouldn't accept open ended contracts.

      Then how come government contracts always go over budget?

      • Planners regularly throw us under the bus, the unfortunate thing when engineers doing the construction aren't involved at every phase.

        Shoddy business cases and estimates regularly undercook the budget to get it through treasury
        then when it comes to delivering the construction team is immediately behind the eight-ball.

        Same with time frames, planners say 1 thing to get it over the line before the next election so it'll get funded, only for it to be underestimated by 20-25%.

        Yes the construction team has its fair share of delays, but quite often it's not as bad as what the planners throw at us

  • +1

    What i want to know is when this all blows over what happens to the construction industry without subsidies and stupid amounts of stimulus.

    A miracle may happen and some other industries might finally get some dough .

    • +4

      But it's the only industry left in Australia given manufacturing is non-existent. Keep the debt fuelled ponzi scheme going.

      But yes in 2 years time when the backlog has dried up and the industry still wants to charge top dollar i think it'll be a day of reckoning. If the government continues to throw grants at it we're all doomed.

      • Government also doesn't get higher cost of housing = higher wages = inflation and we'll put ourselves out of business globally because it is so expensive. Or alternatively the AUD has to tank and we live in a bubble where everything is high in local terms and to the rest of the world AUD is the south pacific pesos.

  • What auditing process is there to stop the builder from offering this deal to every customer as a sales tactic?

    Final cost is still 10k cheaper than fixed so customer will think they are still winning.

    • +4

      OP is not at final cost yet.

  • Is there any industry standard cost averaging method? I know in some contracts with rise and fall there is a published industry benchmark used to calculate the rise and fall. Without that it could be open to abuse.

    Can you ask to see invoices for materials?

    • Good point and noted. I shall look into this perspective. I will also ask for the invoices for those materials.

  • +5

    Builder Charging More for Construction
    We did not go for Fixed price contract.

    Thread CLOSED…

    • -2

      yep, why isn't OP getting roasted?

      Maybe someone can help me. I didn't get insurance, but I had a car crash. Why won't the insurance company cover my accident?

      • +6

        If you read the follow up comments by the OP, he/she feels that the builder is trying to increase the price for parts of the build process which he/she paid for already. I suspect that they misunderstand the process, but it's a valid question.

        To exaggerate the issue to show the point: suppose you built a house in 2019 and it was all finished in November 2019 except for some fancy tapware in the bathroom which was on backorder from the craftsmen in the Himalayas. So the house sat empty and not technically able to be occupied. Come January 2022 the tapware has come in, the plumber installs it, and the builder is ready to get the final signoffs. The builder sends you the final invoice and it's 10% higher than the contract and they cite increases in supply and labour due to covid. Now, as far as you're concerned, everything was done in 2019 before the prices went up, you were only waiting on your special artisanal taps for the bathroom - so how could the prices have increased? This is what the OP is asking, they think that the money they paid originally paid for the things which have been done already, so they don't see how prices can be added on to the previous work that they already paid for.

  • +1

    When we were looking at builders here in SA most volume builders had a clause in the contract about price rises. If you asked enough questions you eventually found out that once or twice a year, on a fixed date, if your build is not finished you get a price rise.

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