Building Contract- Unfixed- Unreliable quotes

Discussion in 'Legal Issues' started by Muc, 22nd Jan, 2022.

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  1. Muc

    Muc Member

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    Hi Forum users,

    I would like to sound board a situation that I am facing and get some advice and answers.

    I have land on which I have engaged a builder to quote for a build, for one of their flagship designs.

    The process of the builder, that from being able to select finishes to being delivered a contract has stretched out 10 months. This long time frame is largely a result of the builder process.

    An updated quote was given after the finishes were selected. The quote increased 30k on the previous quote.

    A contract was delivered , and the price given in that contract has increased by roughly 40k ( close to 10%) on top of the previous quote. The contract additionally has clauses that allow it to charge more for items, including items that weren't properly tallied in their original quote. Their main reason for the price increase and the unfixed contract that they provide is Covid. I stated many times that we want a fixed contract , but they have delivered an unfixed contract (open to how many other costs). However ten months has passes in this time, and so we have incurred this time cost.

    My questions are :

    1. The builder has dragged out the process over 10 months, and is using issues caused by COVID to justify their price increases. Is it typical for a builder to drag out the process this long ?
    2. Is it typical for a builder to increase a quote by 10 % because of COVID ?
    3. Is it typical for a builder to give an unfixed contract ?

    I am unlikely to proceed with the contract as it is and as the expense is open ended.

    It would be greatly appreciated if I can get a sense of the forum on this situation. I do intend to hire a legal professional to read over the contract, however I would also like to get a community sense of this situation.

    Thanks in advance,

    Muc
     
  2. TonTon903

    TonTon903 Active Member

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    HI Muc,

    All of the things you mentioned is quite unusual as most building contracts are fixed price. However, the pandemic is once in a lifetime thing that is the gift that keeps on giving.

    If this was me, I would pause and wait until this madness with trade disruption is over before proceeding as you are pententially walking into a bottomless pit without knowing. Will we have more lockdowns? Will there be more variants? The builder is obviously trying to protect their bottomline and who could blame them, at least they are upfront and honest about the uncertainty and the implication of that for your contract. It really depends how badly you want to build but speaking as someone whose project has been delayed by the pandemic, I would advise that you think very carefully.
     
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  3. wylie

    wylie Moderator Staff Member

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    We had townhouses built with a fixed price contract. Contract was signed in October 2019 (pre-Covid) with earthworks started just as Covid was rearing it's ugly head, built ran through til November 2020. I do know our project manager checked the builder to ensure he was not about to fold through the build time, and I understand the builder asked the same of our project manager... did we have the funds to complete?

    We had full confidence in this builder and he was the one we wanted, and who we got in to walk the block before even hiring a town planner.

    What I do know is that early in the build, he ordered and had delivered many things that could have held him up as Covid started messing with deliveries, pricing etc. All appliances, roof trusses and several other things were ordered and delivered well before they were needed.

    This is the only new build we've ever done, and were advised by a developer friend to lock tight a fixed contract. Covid may mean this is more difficult, but surely a good builder could order and pay for things in advance and avoid the possibility of price rises.
     
  4. Muc

    Muc Member

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    Thanks for your reply
     
  5. Muc

    Muc Member

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    Thanks Wylie. It is also helpful to learn of experiences
     
  6. Joynz

    Joynz Well-Known Member

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    Prices for materials have increased a lot. A builder who agrees to a fixed price contract would end up having to pay for any cost increase in materials after the contract was signed.

    But price increases aren’t in their control.

    It’s a recipe for the builder to go bust.
     
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  7. Muc

    Muc Member

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    Thanks for your reply Joynz.

    In my case, the builder is a volume builder and you would expect them to have staff and processes dedicated to mitigating supply issues and supply cost issues, such that they wouldn't have delivered a contract that increased by 70 k and is uncapped.

    In all honesty from my vantage point, it is difficult to see how much prices have risen and how much is due to COVID, and so I do accept that I really can't judge. I guess that is why I have taken to this forum.

    However such increases on the purchaser is also a recipe for going bust, as I can't imagine many purchasers feeling easy about entering an uncapped contract that has already been increased by 70k.

    Respectfully I do feel for the smaller guys in the industry.
     
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  8. Joynz

    Joynz Well-Known Member

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    $30k of your increase sounds like upgrades you chose to make rather than covid increases.

    All builders will have mitigation strategies in place. Many small builders belong to ‘building groups’ to get good discounts. And of course they get trade prices.

    But it was unpredictable that Covid would happen - and that it would effect prices so much - so they really can’t be blamed for the legitimate increases. National housing construction costs explode, rising at fastest rate since introduction of the GST

    I acknowledge that builders are busy just now and I can’t say whether your builder is bumping up the costs more than the market.

    Can you give examples of the items they have said might increase? Is it things like framing (wood) costs etc - or is it items that you haven’t selected yet - like the stove or floor coverings?

    Which builder are you using?
     
    Last edited: 23rd Jan, 2022
  9. The Y-man

    The Y-man Moderator Staff Member

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    Some big names have gone under - and more may follow.

    More big builders to go bust in 2022?

    The Y-man
     
  10. Investor1111

    Investor1111 Well-Known Member

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    I feel like theres a new, 'builder has jacked the price of my build contract' everyday on this forum. Bad for all parties involved.
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Many fixed price build contracts arent actually "fixed". They often include a rise and fall and all sorts of conditions concerning delay, variation and more. delay is a hude one. Most standard contract say things like council approval and final finance approval need to occur within 60 days of a final quote. Builders also commonly use a agreement contract and then a final construction contract based on final specs subject to council approval which has occurred. Facsade and materials can affect this. Surely you dont expect to agree to buy "The Somerset" home and then 8 months later after land is registered do a site and final spec walk through with mods to the standard build and expect the earlier price estimate ? Time is of the essence clauses are pretty common.

    Wise to seek legal advice on building contracts before signing them. The legal advice will indicate its far from "fixed". The day you sign at the display home is not a contract to build. It is not much more than an expression of interest for the builder to get to a point to quote you a future price. It usually leads to a quote. But thats quote is then held until the approvals and site issues are all known aand assessed. Its possible you can also elect to bail and need to buy out the contract for work the builder has done so far in getting to approval etc. Some cancel at this point and need to pay the builder for work on site and approvals. And then have disputes since they assume its builder cost. Thats not the case. Ditto PC items- the builder will have its cost for such items which may be higher than shelf price as it factors in delivery, handling, installation and more. They have entitlement to charge their price. That will remain a mystery and of course they manipulate it as a buffer. But if you vary or alter spec the product it will always cost much more. Variations is a arewa of profit for all builders. It involves far more than simply changing brand a for b.

    Large builders have very little weight over wholesale materials increases imposed by Boral, CSR etc concrete prices, steel, timber and bricks and labour. Its like assuming Linfox can get better fuel pricing. They may get some token volume rebate but they pay market price less rebate. Any weight a large builder had to slow the impact has long since been absorbed more than a year ago and is now passed on.

    Many build contracts also include refusal clauses where a builder may be professionally obliged to terminate a contract if it imposes a loss.

    You arent dealing with general consumer law here. Its different to Coles and a shelf ticket v at the register.
     
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