VARIATIONS OF building plans or specifications are a common source of dispute between a builder and building owner. This is because variations may increase the contract price and/or extend the building period.
Who can request a variation?
A building owner, the builder or a building surveyor can request a variation. It is important to discrimi-nate between the source of the variation as different statutory processes will apply if the domestic build-ing works constitute a major domestic building contract (i.e. >$5,000). In this case, sections 37 and 38 of the Domestic Building Contracts Act 1995 will apply.
If a builder wishes to vary the contract, or the builder is served with a building notice or order that man-dates the variation, the builder must give the owner a notice. Importantly, the notice must provide the following information:
1. A description of the variation;
2. The reason for the variation;
3. What effect the variation will have and whether it necessitates an amendment to any permit;
4. A reasonable estimate of any delay caused by the variation; and
5. The cost of the variation, if any.
A builder cannot proceed with a variation unless the owner gives written consent. The only exception to this rule is if all of the following events occur: The builder is served with a building notice or order under the Building Act 1993 that the varia-tion be made; and The variation arises from events beyond the builder's control; and A copy of the building notice or order is included in the notice to the owner; and The owner does not give written notice to the builder within 5 business days of receiving the builder's notice that the owner wishes to dispute the building notice or order.
A builder is not entitled to recover any payment for a variation unless the builder has complied with these obligations. Importantly, entitlement to payment is also contingent upon the builder establishing that either: The basis for the variation was unforeseen at the time the contract was entered into; or The Victorian Civil and Administrative Tribunal (VCAT) determines that the builder would suffer hardship and it would not be unfair to the building owner to be ordered to pay the builder for the variation.
An owner wishing to vary the contract must give the builder a notice outlining the variation.The builder can carry out the variation without any signed request from the owner only if the variation does not: Cause an amendment to any permit; Cause any delay; and Add more than 2% to the original contract price.
Otherwise, the builder must give the owner a notice setting out points 3 - 5 above within a reasonable time of receiving the owner's request. The builder should only give effect to the owner's request if the builder's notice is signed by the owner.
A builder is not entitled to recover any payment for an owner variation unless: The builder complies with its obligations; or The VCAT determines that the builder would suffer hardship and it would not be unfair to the building owner to be ordered to pay the builder for the variation.
Payment for variations
A builder is entitled to recover the cost of carrying out the variation plus a reasonable profit. Most contracts provide that if a variation increases the contract price, it will be added to the next progress payment claim. Alternatively, it will be deducted, if the variation decreases the contract price.
A final word
Try to avoid seeking a variation. If you can’t avoid it then document the variation notice properly. Only demand or make payment for the variation with the next progress payment claim.
Antoinette Daley - Senior Associate