Variations under the HBCA Lump Sum Building Contract

Typically, the building contract will contain provisions that set out the necessary processes and requirements for variations. There may also be statutory requirements for variations, depending on the location, cost, and nature of the building work.

In WA the Home Building Contracts Act 1991 (WA) (HBCA) covers contracts with consumers for home building work valued between $7,500 and $500,000. HIA’s HBCA Lump Sum Building Contract is written to comply with the HBCA, including the variation requirements.

How does the owner request a variation?

Owner-requested variations must meet the requirements of the HBCA.

If you are using the HBCA Lump Sum Building Contract, the process under Clause 12(a) will apply:

• The owner or their agent must give the builder a written request for the variation.
• The builder may agree to the request, or decline.
• If the builder agrees, they must provide the owner with a written variation document setting out the date, scope and cost of the variation, as well as any other contractual implications of the change.
• If the owner or their agent agrees to the proposal, they must sign and return the variation document to the builder.
• The builder must then sign and provide to the owner or their agent a fully executed copy of the variation document as soon as reasonably practicable.

The contract will then be formally varied, meaning the builder will be entitled to carry out the work and claim the associated costs with the next progress payment claim after the work is complete.

This process applies to variations in scope, and also variations to terms and conditions of the contract, for example, where the parties agree to change the progress payment structure.

When is the builder entitled to vary the contract?

The HBCA also includes two scenarios in which the builder is permitted to initiate a variation:

• Following any written direction lawfully given by a building surveyor or other person acting under a written law, or 
• In circumstances that could not reasonably have been foreseen by the builder at the time when the contract was entered into.

However, builders cannot pass on price increases solely because of labour and/or materials cost increases.

How does the builder formalise their entitlement?

Under these circumstances the process under clauses 12(b) and (c) applies:

• The builder must provide the owner with a written statement explaining the reason for the variation, the cost to be incurred, and a copy of any directions from a building surveyor or other person acting under written law, within 10 working days of:
  • receiving the directions;
  • becoming aware of the unforeseen circumstances; or
  • when they should have reasonably been aware of the unforeseen circumstances.
• If the owner disagrees with the variation, they may make a complaint to the Building Commission within 10 working days after the statement was given to the owner.

In addition, discussing the circumstances and need for a variation of this nature with the owner, and obtaining their written agreement if possible, can assist in avoiding future disputes.

When might other variations apply?

Under the HBCA Lump Sum Building Contract, the builder can request a variation in other circumstances that are outside the builder’s control, including: 

• Resolving discrepancies or errors in the contract documents where they were prepared or arranged by the owner (clause 3(h)).
• To ensure compliance with relevant statutes, regulations, and local laws, as well as any lawful orders or directions issued under them (clause 4(c)).
• In the case of unforeseeable site conditions (clause 5(a)-(e)), including:
  • when the builder has reasonable doubt about the accuracy or position of the site boundaries and considers it necessary to engage a licensed surveyor to survey and adequately peg or delineate the site;
  • where it is suspected or revealed that additional structural support is necessary to ensure the site can support the works;
  • unforeseen hard digging or latent site conditions; and
  • where power and water are not made available by the owner.
• To fulfil the owner's responsibilities regarding the materials, goods or work provided by the owner (clause 21).

How can the builder request a variation?

In the above-listed circumstances, clause 12(d) applies:

• The builder must provide the owner with a written variation document setting out the date, scope and cost of the variation, as well as any other contractual implications of the change
• If the owner agrees to the proposal:
  • they must sign and return the variation document to the builder;
  • the builder must sign and provide to the owner a fully executed copy of the variation document as soon as reasonably practicable; and
  • the builder shall carry out the work in accordance with the contract as varied.
• If the owner does not sign and return the document to the builder within 5 working days, the builder may:
  • carry out the work without any adjustment to the price; or
  • terminate the contract in accordance with clause 16(g).

Termination is a serious step and there may be other options available. Builders should seek legal advice prior to taking any steps to terminate.

What could happen if the process isn't followed?

There are several possible consequences for builders who do not follow the correct variation procedure, including: 

• being fined under the HBCA
• not being paid by the owner for additional costs
• risking costly re-work
• damaged client relationships leading to future conflicts or future of work, and 
• costly and prolonged dispute resolution procedures. 

Are there any other considerations?

There are several other important considerations in relation to variations, including:

• The owner is required to advise the financier of any changes to the work or provisions of the contract, prior to authorising any changes.
• If the builder has any concerns that the owner may not be able to pay for additional work, they should seek proof of the owner’s capacity to pay under clause 12(g).
• The builder should liaise with the building surveyor to determine whether the changes impact the building permit. If necessary, the building permit may need to be updated to reflect the variation. If this step is missed, the builder may be unable to make the necessary declarations under the BA7 – Notice of completion at the end of the job and may be fined if they do not comply with the building permit.

HIA’s suite of compliant contacts and pro forma documents, such as the Form 1 – Variation to Contract, are available via Contracts Online.