In a rapidly changing construction industry, influenced by the ongoing pandemic and a domestic building boom, the costs of labor and materials in Australia have surged. Under Housing Industry Association (HIA) contracts, it’s crucial for both builders and clients to understand their rights and responsibilities in managing these price fluctuations. RCR Lawyers, based in Australia, is here to guide you through this intricate legal landscape, ensuring you make informed decisions while promoting a successful and transparent partnership between builders and clients.
Understanding HIA Contracts in Australia
What is an HIA Contract?
The HIA NSW Residential Building Contract for New Dwellings is a standardized legal agreement crafted by the Housing Industry Association for building homes in Australia. It serves as the foundation for a transparent relationship between builders and clients, delineating their rights and obligations. Typically, HIA contracts are fixed-price agreements, subject to variations and other price adjustments necessitated by unforeseen circumstances, such as geological discoveries during construction.
Proactive Measures to Prevent Price Increases
Reducing Contract-to-Commencement Time
To mitigate the risk of unforeseen price increases, it’s advisable to minimize the time between signing the contract and beginning construction. This ensures that the build contract accurately reflects the current cost of construction materials and labor.
Opting for Fixed Price Contracts
Fixed price contracts can provide stability and predictability to clients, as builders agree to absorb any additional costs beyond the agreed-upon price, excluding variations or costs arising from factors beyond their control.
Early Material Selections
Making as many material selections as possible before construction commences can reduce prime cost or provisional sum price fluctuations. This leads to a more accurate cost estimation in the initial contract.
Responding to Builder-Requested Price Increases
Variations
Builders can request price adjustments for materials and labor under specific circumstances, often with the owner’s consent. This allows builders to reflect their increased costs accurately.
Prime Cost or Provisional Sum Items
Some fixed price contracts include provisions for price increases due to prime cost or provisional sum items. In such cases, builders can only increase the price in line with the specified allowance in the build contract. When no provision exists, price increases are not permitted.
Other Entitlements
Builders may also be entitled to price increases for reasons beyond their control, such as delays due to planning and building approvals, non-compliance with the build contract by the owner, or unexpected issues like soil conditions or rock discoveries.
If a client considers a price increase excessive or unjustified, or seeks clarification on price calculations, they should engage in open communication with the builder. If resolution remains elusive, clients can lodge a complaint with NSW Fair Trading or the Master Builders Association and may also consider seeking independent legal advice.
Options When Unable to Pay the Increased Cost
If the builder raises the contract price exceeding 5% of the original sum stipulated in the contract, the owner has the right to terminate the contract. However, it’s essential to note that the owner might still be responsible for reasonable costs incurred by the builder up to the termination date.
The current climate presents a challenging scenario for clients in fixed-price contracts facing builder-requested price increases due to material cost spikes. While builders might not be strictly entitled to these increases, clients must navigate a complex decision. They can choose to assert their legal rights or negotiate with the builder for a feasible resolution. It’s vital to acknowledge that enforcing an old agreement could push the builder into a loss, potentially leading to builder insolvency and an unfinished project.
RCR Lawyers, with extensive experience in the Australian legal landscape, is here to help you make informed decisions and ensure a smooth construction process. Contact us online, by email at [email protected], or by phone at 02 9307 8900 for an initial consultation on your property-related questions. Our legal expertise can guide you through the intricacies of HIA contracts, making your construction journey a successful one.
**The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.
