Home Building Contracts: Variations vs. Price Adjustments
Standard Home Building Contracts contain an array of clauses and conditions that, to the non-lawyers out there, can seem to be vague and confusing. There is often, in particular, confusion about the difference between Variations to the Contract and Contract Price Adjustments.
At face value both terms seem similar and there have typically been circumstances where the two terms have been, incorrectly, used interchangeably.
Despite their apparent similarities, each term carries a distinct meaning within the Home Building Contract which creates significantly dissimilar obligations for owners and builders.
How are they different?
In a Home Building Contract, there is generally a clearly defined ‘scope of works’ which sets out exactly what work a builder is required undertake.
A Variation involves a change in the scope of works to be undertaken under the Contract, which can either be an addition or reduction.
For example, an original scope of work may include the construction of a single story house with a wall separating the kitchen from the living room. However, after the Contract has been signed, the owner may request that this separating wall be removed to create an open plan kitchen and living room space. This is a common example of a variation to a Contract.
On the other hand, a Contract Price Adjustment or Price Adjustment occurs in a situation where the builder incurs additional costs performing the ‘scope of works’ that were not anticipated in the initial Home Building Contract.
This is not deemed a change in the ‘scope of works’, but rather it is an allowance for a builder to offset any potential escalation or reduction in the ancillary costs incurred in completing the scope of works.
An example of this is where poor weather conditions delay construction and a builder needs to hire fencing for a longer time period than had been initially anticipated in the Home Building Contract. In this situation, the Contract may make a provision for the builder to pass on these costs to the owner as a Contract Price Adjustment.
How does this affect me and why is this important?
Variations usually require the written consent of both the owner and builder before they can be effected.
Subject to the Home Building Contract, a builder may not need the written consent of the owner to claim payment for a Contract Price Adjustment because it doesn’t involve a change to the scope of works.
This distinction can often create tension between owners and builders, particularly in situations where an owner disputes paying for a Contract Price Adjustment because they didn’t consent to it. These disputes may have far reaching consequences, including either the owner or builder breaches or terminates the Home Buildering Contract, claiming loss and damage.
It’s important that at the beginning of the building process, both the owner and builder establish clear lines of communication to clearly understand the ‘scope of works’ provided for in the Home Building Contract. Similarly, both the owner and builder should also seek external advice at appropriate times to ensure all parties are complying with their obligations.
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