Builder demanding 15% variation amount as provisional Sum.

Bharadwaj · May 10, 2024 10:14 pm

Hi All,
I signed up a contract with AHB group - Royston Homes in Apr'22 to build a new land-home package. Our land was titled only recently. AHB did not provide me any indication of any change to the contract until they shared the designs and got approval from my end.

Now, all of a sudden, they are demanding a 15% variation to the build cost. They are justifying it as increase in labour and material cost. Upon discussion with them, the first option that they provided me was to end the contract which seems very strange to me. Since, they have already started, my preference would be to continue with them but I'm worried

1. Need your advise on how to challenge this variation which seems more like a provisional sum without any details. 2. I'm also a bit worried about the builder and their status given the number of builders going down over the past few months. Can someone please help me with any info on these 2 topics. Any info will be much appreciated

Ashington Homes · May 13, 2024 5:01 am

Bharadwaj

Hi All,
I signed up a contract with AHB group - Royston Homes in Apr'22 to build a new land-home package. Our land was titled only recently. AHB did not provide me any indication of any change to the contract until they shared the designs and got approval from my end.

Now, all of a sudden, they are demanding a 15% variation to the build cost. They are justifying it as increase in labour and material cost. Upon discussion with them, the first option that they provided me was to end the contract which seems very strange to me. Since, they have already started, my preference would be to continue with them but I'm worried

1. Need your advise on how to challenge this variation which seems more like a provisional sum without any details. 2. I'm also a bit worried about the builder and their status given the number of builders going down over the past few months. Can someone please help me with any info on these 2 topics. Any info will be much appreciated

Sorry to hear.

All the advice you are going to get on this one comes down to what your contract says and what variations are allowed and the mechanism for applying them as it will differ significantly contract to contract.

For instance, we use the bulk standard NSW Fair Trading Contract ( not perfect but overly fair for clients) our variations are only able to be applied for 4 reasons, below is an extract:

The work to be done or materials used under this contract may be varied:

1. at the request of the owner, or

2. at the request of the contractor. If the necessity for the variation is due to the fault of the contractor the owner will not be liable for any increase in the contract price, or

3. due to such other matters that could not reasonably be expected to be foreseen by an experienced, competent and skilled contractor for the completion of the work at the date of the contract, or

4. due to a requirement of a council or other statutory authority relating to the work, if at the date of this contract such requirement could not reasonably have been foreseen by the contractor.

And then variations are only applicable if both parties agree and sign the variation request. And in our case we have no ability to just increase the price due to market pricing. That risk is on us. And yes we have lost money in a few circumstances recently where trade pricing came in higher than our budget. But this is the risk of being a builder so we have to wear the swings and round a bouts as we also get a win when prices come in lower then budget.

Now I understand that most people on here are building under the HIA contract which is often heavily modified, and I have heard of instances since COVID where builders have inserted clauses which allow price variations due to material and labour price increases.

This is why you need to read your contract and see what it says and then perhaps get some legal advice to see if you have a way of disputing it.

I would be interested in seeking your variation clause. Is there anyway you can take a screenshot and post it for all our education? There are some experts on here who I am sure will give you clearer advice if you do that.

Cheers

Simeon