What is a HIA fixed price building contract?
The Housing Industry Association (HIA) is a national Association of Australia for the construction industry. The HIA creates Construction contract templates for its members and the public to use.
The HIA fixed price building contract applies to commercial and residential contracts.
For residential builds in New South Wales, the HIA has a new build and a renovation fixed price contract.
These contracts are known as “HIA Building Contract New Residential Dwellings” and “NSW Residential Building Contract for Renovations and Additions”
What are the risks of a fixed-price contract in NSW
There are numerous risks for homeowners in signing fixed price contracts in New South Wales.
We have created a list of examples.
Recently, the New South Wales government has made it easier for Builders to claim payments against homeowners. The government has made the Building and Construction Industry Security of Payment Act apply to residential building contracts. The risk with this new law is that homeowners who are not familiar with the Security of Payment law are exposed to Builders over claiming for their work and then the Builder having a legal right to enforce payment.
Another common risk that homeowners face is that the HIA industry fixed price contract template has essential requirements. The effect of the essential requirements is that if homeowners fail to satisfy the essential requirements within the time prescribed by the contract, the Builder may terminate the contract and be entitled to payments. In effect, homeowners will have to pay the bill down and gain a little to no benefit.
A well-known risk of the HIA fixed price contract is that the variation clauses are favorable to the Builder. There is little protection to homeowners where the builders are great salesmen.
Provisional Sum and Prime Cost Items
An alarming risk that most homeowners are not aware of prior to signing the contract, is that these fixed price contracts include provisional sum and prime cost items. The effect of these clauses is that, any cost incurred by the Builder in excess of the allowance, permits the Builder to claim those costs plus the builder’s margin. These clauses almost certainly expose the owners to increase in their contract price.
Whilst the HIA contract template is probably compliant with the Home Building Act of New South Wales, the HIA template is heavily skewed in favor of the Builder, and is intended to protect the Builder’s interests.
For many homeowners, the date for completion of the works is important. However, under the fixed price contract, the HIA makes it easy for the Builder to extend the date for practical completion. It is common for homeowners to experience not moving into their house by the date practical completion. By the time most homeowners realize that their projects are significantly late, they would often have to rent and be exposed to having limited options on where they can stay. Owners often also have to pay rent and interest simultaneously due to those delays, adding additional financial burden and risk to themselves.
What is the fundamental difference between HIA fixed price and HIA cost plus contract?
The fixed price contract is supposed to be a fixed price. The HIA cost plus contract is calculated based on the cost of the Builder to carry out the works plus his Builder’s margin.
Both of these contracts are subject to the Home Building Act of New South Wales 1989.
The lump sum contract has less flexibility for homeowners, since the scope of work is more rigid and should be known. The Cost plus contract has an advantage where there is a renovation or the work is being performed, and the scope of work is not complete.
The Cost plus contract compared to the HIA fixed price contract has significantly more administration and ongoing owner responsibility. These include providing the Builder timely instructions so that the Builder can perform the Cost plus works, as well as ensuring the Builder is only claiming for genuine Works performed in accordance with the Cost plus contract. Unlike the fixed price (lump sum) contract, the owner’s administration doesn’t require the Builder to assess the works performed on site on a Cost plus basis. And importantly, the fixed price contract scope of work is known at the time of signing the contract, so there is limited need for the homeowners to provide instructions during construction.
The fixed price contract has elements in it that reads like a cost plus contract. For example, the provisional sum and prime cost items have similar elements to the cost plus contract.
Can a fixed price contract be changed?
Contracts may be amended by way of further agreement. So that the changes to the contract can be enforceable, the parties should reflect their agreement by way of deed of amendment. Homeowners should not sign a contract if it is possible that the contract will be changed.
Can a builder increase a fixed price contract NSW?
In post-COVID pandemic time, Builders in Construction in New South Wales are often trying to add more favorable terms to the Builder into the HIA template. The common purpose of the terms is to make the owner pay more money than the agreed fixed price contract amount. The New South Wales government has tried to manage this risk by requiring Builders to specify in the building contract a warning to the effect that the contract may be varied and require the Builder to provide an explanation of the effect of the provision with a warning and explanation to be replaced next to the contract price.
How we can Help
Navigating the complexities of the HIA Fixed Price Building Contract can be daunting for homeowners in NSW. With over a decade of specialisation in construction law, I, as a construction lawyer, have consistently advised homeowners on their contractual and legal rights. My expertise extends to representing homeowners across NSW, Australia, in all courts of competent jurisdiction. I’ve provided invaluable advice to homeowners regarding the HIA Fixed Price Building Contract, ensuring they understand their rights, risks, and obligations. Furthermore, I’ve successfully negotiated and amended contracts to truly reflect the homeowner’s intentions.