PRICE RISES AFTER SIGNING A FIXED PRICE BUILDING CONTRACT?

Discussion in 'Development' started by Benson, 28th Nov, 2016.

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  1. Benson

    Benson Active Member

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    Calling all with Building Experience!


    Wanted to get some advice around price rises after signing a ‘fixed price building contract’ for a major domestic building contract (i.e. Building a new home with works greater than $20,000)

    I first contacted this builder about 6-7 months ago in April 2016 and he provided me with an initial quote. Consequently quote adjustments continued back and forth until we agreed and signed a fixed price building contract with him on 8 Sep 2016.

    We paid 50% of the initial deposit with the remaining 50% to be paid on finance approval.

    8 weeks later (8 Nov 2016) I got my unconditional finance approval and informed my builder we were now ready to pay the remaining 50% of the deposit, to which he informed me that there have been price increases even though we had signed fixed price contract agreement (8 weeks earlier).

    Builder said he needs to check with his Drainage Plumber, Plasterer, Electrician and Roof Gutterer to check if there is any price rises and I told him until we know exactly what prices have changed we wouldn’t be paying the remaining 50% deposit.

    Builder sent me a brief email last week informing me that I’m looking at roughly an extra $4,000 in additional costs? Now today he has informed me that he cannot produce any invoices to prove price rises and is saying the “increases are a general cost of everything from Nails to Suppliers and Materials.”

    The contract we signed is not a HIA contract but an Independent Builders Contract called – “Buildsafe” by ‘Buildsafe Independent Housing Group Pty Ltd’ . He also used to be part of the IBN (Independent Builders Network), but after investigating today he is no longer a member with them for reasons they couldn't disclose due to privacy.

    The Prime Costs / Provisional Sum items listed are as follows:

    PC – 1) 600mm Appliance Pack … 2) Solar Hot Water … 3) Carports

    PS – 1) Joinery … 2) Stone Tops … 3) Wall & Floor Tiling


    To my understanding, only PC or PS items can only change after signing the initial fixed price contract and any price rises outside of these are not allowed? So any increases in price that are not PC or PS I should not be liable for?


    Also a Build Over Easement needs to be submitted for Building Permit and he is now saying that he is charging me at $85p/hr + GST for assisting with the BOE application, which was never discussed as I assumed that he would be doing this as part of his building permit application? Contract specs says “Building Permit – By Builder”


    He’s a bit of a ‘hard arse’ builder with the attitude, “its my way or the highway” type of person.


    Can forumites with building experience provide some opinions on this please?


    Many Thanks
    B
     
  2. tobe

    tobe Well-Known Member

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    odd.

    The wording of a fixed price contract is usually such that they can increase the contract if building costs have increased since you signed the contract. I have only seen these clauses used when the build/lend was delayed by 12 months or more. I'm not sure of the wording in your contract.

    Are you dealing with a sales rep, contract preparation/customer service person, or 'the builder? Is he going to prepare you a new contract to sign with the increased price or just send you an invoice/variation? Is there no one else to speak to in this company, or is he it?

    I guess in the end, you need to decide if this is still a good deal.
    Getting the deposit back might be an issue, as builders usually hold onto any costs incurred, and soil test/ drafting etc can be expensive.
     
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  3. Marg4000

    Marg4000 Well-Known Member

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    May be worth getting the contract checked by a solicitor to understand exactly what you have agreed to.
    Marg
     
  4. melbournian

    melbournian Well-Known Member

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    Normally a turnkey project - will detail who pays fort he building permit, etc. It may say "building permit by the builder" but who actually pays for it. Seems like a lot of assumptions on your part.

    I normally just get a contract with additional special conditions (delays, who pays for what ($400 per week)- landscape, connections, electrical and water consumption, cleaning). Seems like a bad start, I would be reluctant to continue and just find another builder. is the initial deposit bigger than 10%? if it is, it is considered illegal and is void. I would take the contract and go to VBA (Victorian building Authority) in docklands or call them for further advice.
     
  5. Benson

    Benson Active Member

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    Hi @tobe we are dealing directly with the buillder as he is the only person in the business and runs the show. He is proposing to prepare invoices/variations for these extra costs.
    Even if we paid the extra $4,000 it would still be a good deal however how would we know that the additional costs would stop there? He may turn around in another couple of months and say there's another couple of thousand additional charge for 'x'or ý'...

    Thanks @Marg4000 we are definitely considering this. Do you know if there are normally costs straight away if we got a lawyer to a have quick look over something like this? (just to see where we stand)

    Hi @melbournian so it seems as though you need to specify every single little detail in the specs/contract to avoid any future disputes. So for eg. "building permit - by builder" is not sufficient to assume the builder is paying for it?

    I've spoken to the VBA and they said that they dont advise on these sort of matters and referred me to consumer affiars.
    Consumer affiars said that :
    1. we need to negotiate and come to a mutual agreement which I'm open to doing however I need get a guarantee there will be no further price increases - how do I do this? Is getting this in writing from the builder good enough?
    or if that fails ..
    2. I take the builder to VCAT and get him to honour the existing contract (with no price increase) or terminate the contract and request a refund of my deposit and find bew builder.
    Do you just represent yourself at VCAT and does anyone know the process / cost of VCAT? Is it a daunting experience?
     
  6. Joynz

    Joynz Well-Known Member

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    How much money have you paid so far?
     
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  7. norwoodman

    norwoodman Well-Known Member

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    There are a lot of these types of characters who end up in the construction world - very demanding individuals with no negotiation tact and who just want to get things done regardless of whether they are doing things entirely correctly or not.

    The contract and specifications are definitely your friend here, and it would depend on the fine details as to what is acceptable as a variation and what is already covered in the contract. I would definitely be pushing for clarification as to the details of the make up of the additional costs.
     
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  8. Benson

    Benson Active Member

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    Hi @Joynz paid about $3,500 so far which is 50% of deposit.

    I'm beginning to learn that @norwoodman !
    Well initially he said he needs to check with drainage plumber, plasterer, electrician and roof gutterer and then he said "increases are a general cost of everything from Nails to Suppliers and Materials". I'm scheduling a meeting with him in the next day or so and will seek this clarification
     
  9. melbournian

    melbournian Well-Known Member

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    I think if you guys agree to termination and find another builder - that would be the best. VCAT is like 100+ dollars and yes you represent yourself. Process is long and your build will only cost more money in interest. If you're going to VCAT - no point forcing someone to honour any contract, it does not work that way. once the vase is broken, it's hard to put all the pieces back again.
     
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  10. melbournian

    melbournian Well-Known Member

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    That $3500 is really just a small amount and I would look to cancel the contract and find another builder.if it was like 20K or 30K then yes that would be something to be worried about.
     
  11. ashish1137

    ashish1137 Well-Known Member

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    Ask for a full refund. be rude and threaten to lodge a case in fair trading.

    Give him 24 hours and then lodge a case. dont take chances. why you gave 50%. no one gives 50% upfront. (Though i am not sure on how it works for smaller things . :)

    Regards
     
  12. tobe

    tobe Well-Known Member

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    That's a pretty cheap house..... If you want to proceed Id ask him to outline the circumstances where further price rise might be necessary, and ask him if he foresees that in your build. Ask him what he has done to re assure past clients who were in a similar situation. Be conciliatory.

    There are specialist building solicitors, who deal with builder disputes, council planning matter etc, it might be prudent to find one and see if you can get some info from them. I'm sure you have already googled/researched this builder.
     
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  13. tobe

    tobe Well-Known Member

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    Its about right. Most builders ask for $1500 to $3000 upfront as holding deposit, and they spend this money getting soil tests/drafting done. I doubt there would be much left to refund after the contract is prepared.
     
  14. Scott No Mates

    Scott No Mates Well-Known Member

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    Always be very wary of any building contract which is not jointly issued by the RAIA/MBA or RAIA/HIA ie created in consultation with architect and building industry bodies to ensure fair representation and protection for consumers and builders.

    Typically as the builder is the administrator and arbiter on a non-RAIA contract, you need to take legal action to enforce your rights.

    On what basis is the contract price to be varied? Is it under the delay provisions or because the contract is not entered into until full deposit is received or finance approved etc? Is there a time frame around finance approval?

    What justification has the builder used? How is it adjusted under the contract eg rise & fall under NCAP2?
     
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  15. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    As it's only 50% of the deposit you can still quite easily walk away from this - especially since the sum is less than the increase he is proposing. It is unlikely you will get this money back as the Builder may well have conducted work to this value.

    You need to be very careful when signing contracts. Most Fixed Cost building contracts are pro-builder and many of them say that the price is only fixed for 30 days and you have taken 60+ days to get your finance.

    The reasoning for this (in the Builder's defence) is that he will give you a contract and there is generally no time limit on when you will sign it, he does not engage or contract to his sub contractors who have quoted until the full deposit has been paid otherwise he is liable to them as well. So there is a grey area when you have both signed but the prices from his subcontractors may increase. Those subcontractors may have given very competitive quotes to the builder as they needed the work but as it's dragged on they have now filled their workload or simply do have genuine increases in their work.

    You can choose to continue with this builder if you think the price is still fair but be wary that the governing body of the contract (I think that is what you are saying?) he is no longer a member of. You could ask to change to a HIA contract if necessary.
     
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  16. Marg4000

    Marg4000 Well-Known Member

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    Yes you can expect to pay, you cannot expect some one to work for you for free, unless you have a solicitor you use regularly who may be prepared to do you a favour.

    And there is no such thing as a quick look, the contract will have to be read in full before anyone can advise you.

    But you should be able to get a rough quote over the phone if you explain what you need.
    Marg
     
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  17. Benson

    Benson Active Member

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    From my point of view I have 2 options :

    1. Walk away and tell him I want to terminate contract and ask for a refund of money paid less costs for his preparation of contract etc.

    2. @tobe suggestion - Ask him to outline circumstances where a further price rise will be necessary and does he forsee that in our build? And try to negotiate an agreement with guarantee there will be no further price increases. (– I wonder if something in writing such as an email from the builder stating “no further price increases” would be suffice to protect against further increases? )


    @Westminster – If I was to walk away and tell him that we want to terminate the contract, is the deposit money $3,300 I’ve paid so far all that I would lose or is it possible the builder may seek further compensation over and above this amount?


    Would it be best to have a lawyer involved for both options above?
     
    Last edited: 29th Nov, 2016
  18. melbournian

    melbournian Well-Known Member

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    The lawyer may cost more than the $3500. Specialist building lawyers dun come cheap as they do work for the major developers paying top $$$. I have had many building contracts for reno and house builds and never came across one with guarantees for no price increase. The contract shd state the price for build and site costs (estimates ranges). The builder should input any price rises in his quote otherwise the price of petrol could go up and he could say it would increase the price of goods.

    Builder sounds dodgy if u ask me and I would cancel before even starting. Imagine how hard when something needs to be claimed on warranty and he goes oh it is not my fault here's the bill for $300 to drive over to assess that there is nothing wrong. I think u should get a building inspector and each stage from slab till handover of keys as well
     
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  19. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    It really depends on how much work he's done. Has he prepared plans, done any geotechnical tests/reports, any structural/engineering work (or instructed anyone to do so). All of these things would send it over $3500
     
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