Homebuyers Warned as Builders Renegotiate Contracts

The Queensland Building and Construction Commission has warned homebuyers to seek legal advice before agreeing to make payments that fall outside of the terms of fixed price contracts. 

QBCC’s warning comes as builders and construction firms face escalating construction and labour costs and delays. 

Earlier this week, it was revealed Oracle Homes was asking homebuyers for up to $122,000 for price variations due to cost blowouts. 

Master Builders Australia acting chief executive Paul Bidwell said the ongoing war in the Ukraine was also affecting supplies.

“We’ve just seen, as a result of the Ukrainian conflict, the federal government impose tariffs on goods coming out of that region and the immediate impact has been a 25 per cent increase on engineered wood products,” Bidwell said. 

“So that will add $6000 to $11,000 depending on how big the house is.

“Who would have figured that that would have happened, two months ago?”

After high-profile builders Probuild and Condev declared insolvency, a number of smaller subcontractors, builders and construction firms are barely managing to stay afloat. 

“What Oracle is going through is no different to what any other builder in Australia is going through,” Bidwell said.

“They have signed a fixed price contract and in the period of that contract, the cost of materials and labour has gone up astronomically.” 

Cost variations can be accounted for via rise and fall or cost escalation clauses in contracts but when and how these can be introduced into contracts varies from state to state. 

With a fixed price contract the homebuyer is not required to pay any more than what was initially agreed to in the contract but it does not prevent the buyer from contacting the homebuyer to negotiate.

Bidwell said it was key to keep the homebuyer informed and to try to negotiate. 

“There is nothing to stop the builder going to their clients and saying ‘here is the problem I have got. I can't finish it by this time, it's going to cost more, here are my invoices so you can see the costs’,” Bidwell said.

“It's all about managing relationships.
 
“The builder has to manage the relationship with the client so there are no surprises.”

▲ Metricon is renegotiating some contracts.

Metricon's chief executive Mariao Biasin recently announced that it was renegotiating contracts with some clients. 

“Metricon is committed to fulfilling every valid contract in which a fixed price has been agreed,” Biasin said.

Last financial year, Oracle Homes built 112 houses worth $36.6 million, a drop of nearly two thirds compared to the previous financial year when it built 318 houses worth more than $90 million. 

It has a category 6 licence allowing it to build up to $240-million worth of housing per year. 

Bidwell said there seemed to be no short-term solutions.

“We do need to do more planting with forestry and more domestic production and manufacturing,” Bidwell said. 

“But it won’t fix the problem in the short term.

“It’s very difficult—there's not much that can be done.”

Monash University Professor Gerber told media this week that if a builder went bankrupt it would affect every one.

“When things start to go wrong for the builder, it really has a domino effect because all the people they are responsible for paying — their workers, their suppliers, their tradies — they all suffer and can't be paid,” Gerber said.