The building and construction industry has been overly topical recently with an increase in builder insolvencies, rapid price increases for raw building materials and shortages of labour.
Residential building contracts should be in writing in a format using one of the three main industry standard contracts. However, we are still seeing an alarming number of clients entering into contracts with builders that are deficient, lack relevant details or are not signed at all.
Which contract to use?
Generally speaking, the three main types of industry standard contracts prescribed are developed by Master Builders Queensland (MBQ), the Queensland Building and Construction Commission (QBCC) or the Housing Institute of Australia (HIA).
Although the MBQ, QBCC and HIA contracts can be fixed sum contracts (meaning the price you pay to the builder is locked in), residential house renovations can get out of hand when there are large allowances for what are called “prime costs” and “provisional sum” items.
What are prime costs?
Prime costs would be where a particular fixture or fitting (such as tiles or the basin) is required as part of the works in a contract, but the exact specification (brand/model/style) and cost is yet to be confirmed at the date of the contract. Prime cost items allow the builder to allocate a “budget” in the contract for the item, rather than specifying the exact cost.
What are provisional sums?
Provisional sums may be used where certain items of work are required as part of a contract (for example excavation for a pool), however the builder is unable to provide an exact cost at the date of the contract. The provisional sum may be for both material and labour.
Generally speaking, if the actual cost is below the prime cost or provisional sum allowance in the contract, the builder must deduct the actual costs incurred from the price costs or provisional sums which make up the contract price when submitting its next progress claim.
Alternatively, if the actual cost is above the prime cost or provisional sum allowance in the contract, the builder would include this additional cost in its next progress claim for the owner to pay.
How do prime costs/provisional sums work?
The builder is required to provide a reasonable estimate of the provisional sum items, although the estimate can be at the low end of the range that the item could reasonably cost. Our recommendation is that owners always satisfy themselves by making independent enquiries that figures provided for the provisional sum items are within the range of what those items might reasonably cost.
Obtaining legal advice
Under the building and construction legislation, there is a standard 5-business day cooling off period from the day the parties have signed the contract.
However, you will be unable to use a cooling off period to withdraw from this contract if you change your mind after seeking legal advice from a lawyer prior to signing the contract.