What's the Cost? Price under Domestic Building Work Contracts

Before entering into a contract to build your home or have building work costing over $12,000 done, knowing the basic requirements for those contracts can put you in a better position to negotiate and protect yourself against the risk of unexpected costs.

The Building Work Contractors Act 1995 (SA) (“the Act”) sets out formal requirements for domestic building work contracts in South Australia, and the pricing requirements in those contracts.

Formal Requirements

Section 28 of the Act sets out the formal requirements for domestic building work contracts for work for over $12,000.

All domestic building work contracts in South Australia must be in writing, setting out the name and contractor’s licence number of the building work contractor. It must comply with the regulations. The contract must be signed by the building work contractor and the building owner, or otherwise by their duly authorised agents. Once signed, a copy of the contract must be provided to you as the building owner, along with a notice containing prescribed information, and that copy must be readily legible.

Price under your Domestic Building Work Contract

Section 29 of the Act sets out the legal requirements for pricing in a domestic building work contract.

You may expect that a domestic building work contract will provide a price, and that is the total of what you will pay. However, this is not always the case.

It is important to recognise the way in which your domestic building work contract deals with price, as depending on the terms of the contract, the figure you see may in fact be subject to change.

Section 29 of the Act sets out the ways in which contracts are legally allowed to deal with pricing, as follows:

  • Fixed Price Contracts
    • The price is not subject to change, and the terms of payment are set out.
    • The contract cannot contain a “rise-and-fall clause”, a “cost plus clause” or a “GST Clause” as appears below.
    • However, the terms of the contract may allow for variations to this price, subject to agreement or what the specific contract terms say.
  • Contracts with a “Rise-and-Fall Clause”
    • The building work contractor will stipulate a time for completion of the build, and the price may change based on the materials used and changes in costs of labour within this time.
    • The price or prices in the contract will be accompanied by the statement “This Price May Change” or “Estimate Only”, and if this applies to more than one price, those prices should be provided in a list.
    • May also include a “GST Clause” providing that the price may increase to cover GST paid or payable by the contractor for the supply of goods and services under the contract.
  • Contracts with a “Cost Plus Clause”
    • The building work contractor will be entitled to recover the actual cost for the materials and performing the work, plus an additional amount not exceeding 15% (per the Building Work Contractors Regulations 2011 (SA)).
    • The building work contractor may also recover other amounts prescribed by the regulations.
    • The price or prices in the contract will be accompanied by the statement “This Price May Change” or “Estimate Only”, and if this applies to more than one price, those prices should be provided in a list.
    • May also include a “GST Clause” providing that the price may increase to cover GST paid or payable by the contractor for the supply of goods and services under the contract.

If your domestic building work contract includes a Rise-and-Fall Clause, or a Cost Plus Clause, it may be a good idea to specify and confirm as many of the specifications as possible prior to entering into the contract, to minimise the amount by which the estimated price may vary.

Right to Terminate

The Act provides building owners with a right to terminate under Section 36 within the “prescribed time”, which generally is the end of five clear business days after entering into the domestic building work contract.

However, if the contract fails to comply with the requirements set out above (or other requirements as prescribed under the Act), then the building owner is entitled to terminate the contract up until the time of completion of the building work under the contract.

If you wish to terminate the contract, this must be done by giving notice as prescribed under Section 36.

If you have terminated a contract, you can apply to the Magistrates Court under Section 36(4) to seek orders for repayment of money paid by you under the contract.

This does not mean you can terminate the contract at any point before completion of the building work without consequence! A building work contractor is also entitled to apply to the Magistrates Court to seek orders for payment, so they may be able to recover money from you for materials supplied or work performed in relation to the contract.

Please note that the above advice is general, and you should seek tailored advice on the specific terms of your domestic building work contract. If you are need advice on a domestic building contract, our team at Clelands Lawyers will be happy to assist you.

Shannon McMenamin

July 2018