Your builder tells you that the contract price has increased.
Perhaps the cost of materials has increased. Unexpected rock shelves have been discovered during excavation. A product shown in the plans is no longer available. Or the builder says that work you assumed was included is actually a variation.
For homeowners, this raises an immediate question:
If I signed a fixed-price home building contract, do I have to pay the extra amount?
The answer depends on the contract, the original scope of work, and the reason for the additional cost. A builder asking for more money does not automatically mean the increase is valid. Equally, describing a contract as “fixed price” does not necessarily prevent every adjustment.
The important question is whether the builder has a contractual and legal entitlement to the additional payment.
Can a Builder Increase the Price of a Fixed Price Contract?
Under most home building contracts, a builder cannot simply increase the contract price because the project has become less profitable, or materials now cost more.
NSW Government guidance states that, for contracts valued over $20,000, a builder generally cannot increase the price unless the contract contains a clause allowing the increase. Under most contracts, an increase will usually need to arise from a variation or another recognised price adjustment mechanism.
Before agreeing to an increase, homeowners should check:
- whether the contract contains a price adjustment clause;
- whether the additional work was already included in the original scope;
- whether the homeowner requested or approved a change;
- whether a prime cost item or provisional sum has been adjusted;
- whether an unforeseen site condition is covered by the contract;
- whether the builder has complied with the contractual variation procedure; and
- whether the amount claimed has been properly calculated.
The fact that the builder has incurred an additional cost does not, by itself, establish that the homeowner must pay it.
For further official guidance, see NSW Fair Trading’s guidance on home building.
What is a Variation?
A variation is a change to the work, materials, plans, specifications or other obligations originally agreed under the contract.
Common examples include:
- changing tiles, appliances, windows or other finishes;
- adding a room, deck, retaining wall or other work;
- changing the layout or dimensions shown in the plans;
- substituting materials that are unavailable;
- carrying out additional excavation or engineering work;
- complying with a new council, certifier or engineering requirement; or
- deleting work from the original scope.
Variations may be requested by the homeowner, proposed by the builder, or required because of unforeseen circumstances.
Not every piece of additional work is necessarily a valid variation. A dispute often arises because the homeowner says the work was already included in the contract, while the builder says it falls outside the agreed scope.
That dispute must be resolved by examining the complete contract documents, including the plans, specifications, tender, inclusions, exclusions, and any special conditions.
Does a Variation Need to be in Writing?
NSW home building contracts are required to provide that an agreement to vary the contract, plans or specifications must be in writing and signed by or on behalf of both parties.
According to NSW Government contract guidance, a written variation should ordinarily be agreed before the variation work begins and should identify:
- the reason for the variation;
- a clear description of the additional, changed or deleted work;
- any revised plans or specifications;
- the calculation of the change in price;
- the builder’s margin and any applicable fees;
- the effect on the total contract price; and
- any additional time required to complete the work.
The document should show how the price has been calculated, rather than merely stating a new lump sum.
An exception may arise where urgent work is required to prevent danger to a person or damage to property. In that situation, it may not be practicable to document the variation before the work is carried out.
An unsigned or retrospective variation is a warning sign, but it does not necessarily mean that the homeowner will never be required to pay anything. The builder may argue that the work was authorised, necessary, or recoverable on another legal basis. The contract, communications between the parties and surrounding circumstances must all be considered.
Common Reasons Builders Ask for More Money
1. The Homeowner Requested a Change
A homeowner may decide to upgrade finishes, change the layout, or add work after signing the contract.
Even a seemingly small change can affect labour, materials, subcontractor scheduling and completion time. The builder may also be entitled to apply the variation margin or administration fee specified in the contract.
Before approving the change, the homeowner should obtain the total cost and time impact in writing.
2. Prime Cost Items and Provisional Sums Have Increased
A prime cost item is generally an allowance for an item that has not been finally selected or priced when the contract is signed, such as tiles, tapware or appliances.
A provisional sum is an estimate for work that cannot be accurately priced at the time of contracting, such as excavation, rock removal or certain foundation work.
If the actual cost exceeds the allowance, the homeowner may be required to pay the difference, together with any margin permitted under the contract. If the actual cost is lower, the homeowner may be entitled to a credit.
A contract with numerous low or incomplete allowances may appear affordable at signing but produce significant increases during construction.
3. Unexpected Site Conditions Are Discovered
Additional costs may arise from rock, contaminated soil, asbestos, inadequate bearing capacity, underground services, drainage problems or the need for additional engineering.
Whether the homeowner must pay depends on how the contract allocates site risk.
Some contracts place broad responsibility for unforeseen site conditions on the homeowner. Others require the builder to have conducted particular investigations or included reasonably foreseeable work in the contract price.
The builder should identify the relevant contract clause and explain why the condition was not part of the original scope.
4. Authorities or Consultants Require Additional Work
Council, a registered certifier, an engineer or another authority may require changes to the proposed work.
A contract should explain who is responsible for obtaining approvals and who bears the cost of additional requirements. Homeowners should not assume that every regulatory or engineering requirement automatically becomes their financial responsibility.
It is also important to determine whether the requirement was genuinely unforeseen or resulted from an error in the builder’s design, documentation or work.
5. Materials Have Become More Expensive or Unavailable
A builder may point to increased labour or material prices.
A general increase in the builder’s costs does not automatically vary a fixed-price contract. The builder must identify a contractual clause, permitting the adjustment.
Particular care should be taken with broad clauses allowing the builder to increase prices because of supplier price changes, shortages, delays or increases occurring after a stated period. The clause should be reviewed alongside any warning or explanation about how the contract price may change.
6. The Builder Says the Work Was Excluded
Many disputes begin with the words “that was not included.”
Common exclusions include:
- rock excavation;
- retaining walls;
- service connections;
- stormwater and drainage work;
- landscaping and fencing;
- demolition or removal of hazardous material;
- council or certifier fees; and
- work shown in one document but omitted from another.
The contract may incorporate several documents that do not say the same thing. It is therefore important to check whether the contract contains an order-of-precedence clause explaining which document prevails where the contract, plans, tender and specifications are inconsistent.
7. Additional Costs Are Claimed Because of Delay
A variation may affect the construction period as well as the price. In some circumstances, a builder may claim additional time or costs arising from an owner-requested change, delayed selections, lack of site access or another event covered by the contract.
However, an entitlement to an extension of time does not always create an automatic entitlement to additional money. The wording of the particular contract must be examined.
When Should a Homeowner Question a Variation?
A homeowner should seek further information where:
- the work appears to form part of the original plans or specifications;
- the builder cannot identify the clause permitting the increase;
- the variation contains no cost breakdown;
- the builder claims one amount without identifying labour, materials, margin and GST;
- no credit has been allowed for work removed from the contract;
- the builder carried out non-urgent work before obtaining approval;
- the variation does not state its effect on the completion date;
- the builder is attempting to transfer the cost of correcting its own mistake;
- the claim relies only on a general increase in material prices; or
- the builder requires immediate payment before providing supporting documents.
NSW Government guidance states that where a variation is required because of the builder’s own fault, the homeowner should not have to pay additional money to rectify that problem.
What Should You Do When the Builder Asks for More Money?
Step 1: Ask for the Contractual Basis
Ask the builder to identify the exact clause relied upon.
The request should distinguish between:
- a variation;
- an adjustment to a prime cost item;
- an adjustment to a provisional sum;
- a site condition claim;
- a delay-related cost; and
- another contractual price adjustment.
These are not necessarily governed by the same rules.
Step 2: Compare the Request with the Original Scope
Review the contract, plans, specifications, tender, inclusions, exclusions and any earlier correspondence.
The central question may be whether the builder is genuinely performing additional work or charging separately for something already included in the original price.
Step 3: Request a Proper Cost Breakdown
Ask for:
- the cost of additional labour and materials;
- supporting quotations, invoices or receipts where appropriate;
- the contractual margin;
- any administration fee;
- the value of work being deleted;
- GST treatment;
- the revised contract price; and
- the proposed extension of time.
Do not assess the variation solely by looking at the final amount.
Step 4: Respond in Writing
The homeowner should clearly state whether the variation is:
- approved;
- rejected;
- approved subject to conditions; or
- not capable of being assessed without further information.
Avoid giving casual verbal approval where the cost and time consequences remain unclear. Keep copies of emails, messages, quotations, plans, photographs, invoices and site meeting notes.
Step 5: Do Not Ignore a Payment Claim
A disputed variation may later appear in a progress claim.
Homeowners should not assume they can safely withhold every payment because one component is disputed. Failure to make a payment required by the contract may allow the builder to pursue recovery, suspend work or use the adjudication process under the Building and Construction Industry Security of Payment Act 1999 (NSW).
If a document states that it is a payment claim under that Act, seek advice promptly because strict procedures and timeframes may apply. See our Security of Payment lawyers page and our guide on what constitutes a valid payment claim.
Step 6: Obtain Advice Before Terminating the Contract
A disagreement about additional costs does not necessarily give the homeowner an immediate right to terminate.
Wrongful termination can expose a homeowner to a claim for damages, unpaid work, demobilisation costs or loss of profit. NSW Government guidance describes termination as available only in limited circumstances and recommends obtaining professional advice first.
Check Your HBC Insurance Before Making Additional Payments
For residential building work over $20,000, the principal contractor must generally obtain Home Building Compensation cover before requesting or accepting any payment, including a deposit, or commencing the work.
The contracting entity named on the insurance should match the entity entering into the building contract.
SIRA also warns that failing to obtain the required insurance may affect the builder’s ability to enforce the contract or recover money. Homeowners may also be unable to recover certain losses if the work was not properly insured.
Importantly, NSW Government guidance warns that additional payments not required under the contract may not be recoverable under the Home Building Compensation Fund.
Homeowners should therefore be cautious about making informal advance payments intended to help the builder with cash flow.
How to Reduce the Risk Before Signing
Many price disputes can be prevented at the contract review stage, by making sure the scope is complete, inclusions and exclusions are express, prime cost items and provisional sums are realistic and clearly quantified, and the variation procedure states both cost and time consequences.
For what a pre-signing review covers and how it works, see our home building contract review lawyers page. If you are the builder issuing the contract, see our guide to the contract clauses builders should check before signing.
How Citilawyers Can Help
Citilawyers acts for homeowners and builders in home building contract matters throughout Sydney and New South Wales.
Before a contract is signed, we can review the proposed contract and special conditions, identify clauses that allow the contract price to increase, examine prime cost items, provisional sums and exclusions, advise on variation margins, payment stages and site risks, explain the contract in plain English, and recommend amendments to reduce the risk of later disputes.
Where a price dispute has already arisen, we can assess whether the builder has a contractual entitlement, review the original scope and variation documents, advise on disputed progress claims, prepare or respond to contractual notices, assist with negotiations, and act in Building Commission NSW, NCAT or court proceedings where necessary. For disputes during construction, see our building contract disputes lawyers page. For defects discovered after completion, see our defective building work lawyers page.
If your builder has requested additional payment, do not approve the variation or stop making contractual payments without first understanding your position.
Call Citilawyers on (02) 9233 7737 for a free initial phone consultation, or contact us today. Have the contract, the variation document and the relevant plans ready when you call.
