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Price changes allowed by building law
The law only allows certain changes to the price stated in a signed domestic building contract.
Legal changes to the contract price include:
- variations (changes agreed by you and your client to the plans and specifications after the contract is signed)
- prime cost and provisional sum items (client selections of fixtures and fittings that are included in the contract but not specifically identified or the price is not known when the contract is signed).
The contract must include:
- a detailed list of the prime cost and provisional sum items
- a breakdown of the cost estimate for each item. This must show the estimated quantity of materials and the unit cost to you
- if you intend to charge more than the actual cost increase, how you will calculate any extra amount charged for these items, and the exact extra amount to be charged.
You must give your client a copy of any invoice, receipt or other document that shows the cost to you of any provisional sum or prime cost item. You must give your client this as soon as possible after you receive it.
Variations are changes to the contract that:
- you or your client want to make
- the building surveyor orders after the contract has been signed and building has started.
Your client should not have to pay when variations are ordered to deal with issues that you should have identified before starting work. For example, extra costs to deal with rock, when you could have predicted this problem by reviewing the foundation data.
By law, you and your client must agree in writing to the changes and put the details, including new price and completion date, in the contract before the work is carried out. A variation notice is used to change the contract.
A variation notice is not required when you reasonably believe the changes will not:
- require a change to any permits for the project
- cause delay
- add more than two per cent to the original contract price.
When an 'authorised person' orders variations, you must give your client a copy of the order to make the changes and the variation notice. The list of authorised persons includes:
- an architect registered under the Architects Act 1991
- a building surveyor, building inspector or an engineer registered under Part 11 of the Building Act 1993.
If your client does not agree with the changes ordered, they must advise you in writing within five business days of receiving the notice.
If you require more information about variations or help with building issues, contact the Building Information Line on 1300 55 75 59 between 9:00 am and 5:00 pm, Monday to Friday (except public holidays). Calling this number costs the same as a local call. Additional charges may apply if you are calling from overseas, on a mobile, or payphone.
Prime cost and provisional sum items
Prime cost and provisional sum items can lead to disputes with your client. To avoid such disputes, it is better to have specified everything in the contract. This means you can give a fixed price for the work.
The law defines prime cost and provisional sum items as:
- Prime cost item - a fitting (for example, a basin) included in the contract but your client has not selected the actual item or the price is not known when the contract is signed.
- Provisional sum - a reasonable estimate of the cost of carrying out work if you cannot give a definite price when signing the contract (for example, supply and installation of air conditioning).
By law, you must make a ‘reasonable allowance’ for the nature and location of the building site when estimating supply and delivery in the contract price. For example, if you are building on a rural property or a steeply sloping site, you must allow for transport and access costs.
Your client has a legal right to a ‘reasonable estimate’, regardless of the contract they sign.