Building price increases

Hi, new here and considering a knock down rebuild in NSW. I keep reading about delays and increases in build prices due to Covid and supply chain issues. Anyone know if this is expected to continue? By the time we start our build journey it would probably be end of 2022 or even start of 2023. Would supply issue be better by then? Any insights welcome!

no one knows. There's predictions on both sides, but it's hard to tell.

MissChilli

It's hard to know, but personally I think it's going to get worse before it gets better.

We were having an internal meeting yesterday going through all the price increase notices we have received from our suppliers over the past few months.

The price rises have affected everything from bricks, concrete, joinery, timber, power points, yesterday it was a 30% increase in steel ( the forecast is 70% next year).

12 months ago we were doing custom builds for $2-2200/sqm. Now we are struggling to make money at $3,000/sqm.

Just reading about the Privium collapse in Queensland and it wouldn't surprise me if we see similar ones in NSW. For all the builders who have signed construction contracts with customers ( most of them have very low net margins prob 4-5%) if you have hundreds of contracts locked in and prices go up by 50%, the math just doesn't work.

My business is fine as we have a much quicker lead time from pricing to building then the big guys do, so when we sign a contract the trading price is more current then if you are signing a contract 12 months out.

Best advice I can give you is set your budget, be realistic and then design a home to fit that budget, not the other way around.

Best of luck

Simeon

crazy times, Simeon

what are the concrete pricing changes btw?

Alex


Boral are charging us an extra 8% and then you have the steel increases and concreters have increased their rates, so depending on the job we are allowing about 20% more when quoting.

And then there is timber, that has increased nearly 100%. I know multiple framing carpenters who wont take on framing work any more and have switched solely to finishing carpentry. Simply because they had started jobs and then couldn't get enough material to finish the job and or prices had increased between quoting and starting and clients wouldn't pay more, so they walked away. So now the decent carpenters you can find are charging more for the risk.

Oh and I forgot to mention that windows are more expensive. On a job last week we had budgeted $34,000 and all the quotes were coming in over $60,000. Standard job. We have never had a job where we have gotten windows so far wrong.

Honestly, being on the coal face, it's pretty confronting as to how quickly these huge increases have hit.

how do windows guys explain such a steep rise?

Hi Simeon and all,
Isn't there is a clause in a MBA standard contract to allow the builders to pass the increased cost to the owners? How can the builders get bankrupt if they are always able to do that? This clause makes me very worried as a homeowner, indeed. I quote the clause here. Many thanks for the advice.

13. DELAYS AND EXTENSIONS OF TIME
a) The Builder is entitled to a reasonable extension of time if the Works are delayed by:
i) variations;
ii) suspensions under clause 23;
iii) inclement weather (including the consequential effects such as inaccessibility to the Site);
iv) proceedings taken or threatened by, or disputes with or objections made by neighbouring owners or
residents;
v) civil commotion or industrial disputes affecting any of the trades employed on the Works or the
manufacture or supply of material for the Works;
vi) any act, default or omission on the part of the Owner; or
vii) anything else beyond the control of the Builder, such as, but not limited to trade contractor shortages
or material shortages which affect the Builder’s ability to do the Works.
b) The Builder must serve a notice on the Owner within five (5) Business Days of a delay described in clause
13(a) occurring. The notice will identify the extended Construction Period (Appendix A, Item A13) and the
extended Date for Practical Completion (Appendix A, Item A10).
c) If requested by the Owner, the Builder must supply supporting information as to the cause of the delay as soon
as reasonably practicable.
d) The Builder is entitled to an increase in the Contract Sum if the delay results in an increase in Actual Costs.
Such costs must be submitted to the Owner as a variation notice pursuant to clause 15, to be included in the
Builder’s next progress payment claim.

That's a fair question.

I haven't seen the MBA contract before so not sure which areas this contract is used in.

As far as I am aware, in NSW the majority of builders use the HIA contract with a smaller number using the NSW Fair Trading contract.

The standard HIA contract and the NSW Fair Trading contracts don't include this clause, and are Lump Sum Contracts which means that other than new Govt taxes, or variations by the owner or latent conditions, the contract price is the total price payable. The builder has the risk of trades and material pricing.

There are possibly some amended HIA contracts that have a clause that allows the builder to put up their price, which is why if the builder tries this, always get a specialist construction lawyer to give you advice.

But speaking to industry colleagues, there is wide agreement that none of us have ever seen market conditions like these, and that there is a real risk of builders who have sold building contracts or land and housing packages on fixed contracts 12 months ago, will struggle to deliver these without having a mechanism to raise prices significantly.

My personal opinion is that over the next 6 -12 months we are going to see a greater number of builders default and insurance claims increase.

I have been running my NortH Ryde duplex blog, we are building 4 duplexes in the area and I think we have pretty tight pricing and we run really low overheads. I know what I can buy materials for and we negotiate hard, but I hear about project home companies who are still selling packages for half of our prices. Half!!

I know what concrete costs, what timber costs, what roofing costs etc and it's beyond my comprehension how this is feasible. I know of one builder who is offering duplexes at $1000/sqm,

They must be operating on a super low margin high volume operation where they need to keep selling lots of volume to fund their overheads, dont want to use the term ponzi but it has to be similar. As long as you keep that volume of deposits coming in you can stay ahead of invoices for a while but eventually it has to collapse. But then on the other hand, customers need to be slightly aware of what things costs and know that if you are signing a building contract for $1000/sqm it has to be too good to be true.

Anyway, I could talk about this all day. Best way to avoid issues is have your builder do what we do and go to trade pricing just before you start building so you are getting a fair market price in your contract.

Cheers

Simeon

Thanks Simeon,
Even in the HIA contract, there is a clause similar. This is in Canberra though.

Clause 22. Delays and extensions of time
1. The completion time will be extended if the building works are delayed
because of:(a) a variation;
(b) any suspension of the building works beyond the builder's
control or under the contract;
(c) bad weather conditions that affect the building works;
(d) disputes with neighbouring owners or residents or proceedings brought or threatened by them, that are out of the builder's control;
(e) civil commotion or industrial action affecting the work of sub-contractors, tradespeople, a manufacturer or a supplier of materials for the building works;
(f) anything done or not done by the owner;
(g) delays in getting any approvals that are out of the builder's control;
(h) the industry shutdown during the 25 day period beginning on or about 22 December each year;
(i) delay in the supply of materials selected by the owner;
(j) an 'act of God', fire, earthquake, or explosion;
(k) any discrepancy in the plans and specifications which is not the fault of the builder; or
(l) the need for a survey of the site.

2. The builder must notify the owner in writing within 5 days of becoming aware that the building works will be delayed. The builder must set out in the notice the reasons for the delay and how much extra time is needed.

3. Except for the industry shutdown referred to in Clause 22.1(h), the builder
shall be entitled to an increase in the contract price, but only if the delay
results in an increase to the costs of the builder. The builder must include
this amount in the next progress claim.

Htn2021

Can you email me that contract as a whole as it is different than the 2 HIA contracts I have in my possession? Also need to see what is allowed for in the variation clause as that is very relevant. My email is simeon@ashingtonhomes.com.au

Seems that the HIA contract is getting modified builder by builder, could also be a new or older version, but what that tells me is that when you find a builder who uses that contract, get that deleted.

However:


Unless I am not reading it correctly I can't see how it can be interpreted to give the builder the right to just increase their price because supplier prices have increased.

That goes completely against the intent of a lump sum contract maybe thats the point

My interpretation is that reads that costs can increase in the following circumstances:

1. Variations - without reading the variation clause you would assume that they would be the standard by the owner or latent conditions
2. Civil unrest & Industrial disputes
3. Disputes with neighbours
4. Materials supplied by the owners
5. Delays in council approvals
6 Discrepancies in plans supplied by the owner
7. Acts of god
8. Weather

Part 3 is basically saying that if any of these events cause an increase in price then the builder can make a claim. It doesn't say that if material prices increase or labour prices increase builders can pass on these costs.

Lets get John the legal experts advice on this.

If I am wrong, this would mean I could start quoting jobs at half price to win them and then when I cant find tradespeople to build the half price homes we could claim a shortage of tradespeople and submit a variation.

Maybe you have found a loophole

please email your contract as I want to compare against my versions and check out the variation clause.

Final thought, have a read of the NSW Fair Trading contract and you will see why I am a big advocate for it.

Cheers

Simeon

The clients aren't going to test that in court LOL, they have run out of money
Besides the govt and regulators are backing this sort of behaviour-> OBG and they can't say we didnt see it coming?
What's really sad is they are spruiking inflation is around 3%?
If you are homeless it's 100% (humour) my2c

It will be pretty hard for any builder to rely on those clauses if the owner disputes the delay.

They require notice to be provided within 5 days of the builder becoming aware of a delay.

The delays attributed to material shortages have been in newspaper articles for the last 12 months.

A builder waiting until they're on site and slab down before claiming a delay in timber likely hasn't been proactive enough to rely on those clauses, any builder has known about the delays for months.

Chris

I don't disagree with you in terms of clients not pursuing it court, but being the former GM of one of these companies I never came across anyone who ever had this interpretation either. These guys spend heaps on lawyers and if it was possible to unilaterally increase prices during a build they would be doing it all the time.

Cheers

Simeon

Agreed. But the only significant delay of materials at the moment where I am is framing timber and some various selections of taps and toilets that are in containers somewhere.

The main issue is that supply prices have increased, and under the design and construct concept ie the builder designs and constructs you a home, the risk is 99% on the builder.

We both have been in the industry long enough, to know what really goes on....
Builders can delay the projects, Change things by variation to the contract, etc,etc
Clients always pay

Lol true! we are on the same side of this discussion Chris. The industry is so slanted away from consumers, and I appreciate how you advocate for the mums and dads who arent experts

You and I are on the same page

This is what is happening in Perth, I have tracked all major increases since January 2021 (There are others I haven't worried about) this is on top of the increases we had in the last quarter of 2020

Bricklayers in Perth are on the loose?

Attached are the sample HIA and MBA contracts from two different builders in Canberra.
See Clause 13 in the MBA and Clause 22 in the HIA
Link: https://drive.google.com/drive/folders/ ... sp=sharing