Occasionally, throughout the progress of your renovation unexpected circumstances may require you or your builder to change the scope of the building works. This may include a modification to a particular building material or alteration to a product selection. Such a change to your building contract is known as a ‘variation’.
To avoid unnecessary time delays to your project, potential disputes, or even a compromised home warranty insurance policy, it is important to know that the builder must ensure the formal requirements for a variation are met in order for the changes to be compliant.
All variations are required to be in written form, in legible English and must:
- Describe the varied work, along with the reason, if sought by the builder
- State a reasonable estimate should there be a period of delay
- State the contract price increase, or decrease, to a fixed price contract
- Detail when the variation becomes payable (for an increase in the contract price), or when the decrease is to be accounted for (for a decrease in the contract price).
Prior to the varied works commencing or material changes being effected, you must agree to the changes.
In addition, the builder must take all reasonable steps to ensure:
- The document is signed by both you and your builder, and
- You are given a copy of the document within five working days of your mutual agreement.
There are some additional important points to remember when a variation is requested:
- The builder cannot ask you for payment before the work has started.
- The builder may charge a reasonable price for the varied work, including and amount for the builder’s margin.
- You cannot refuse a builder’s request where the variation is required to comply with the law. For example, a change to a particular material selection so as to fulfil the relevant building codes and regulations.
- In exceptional circumstances the builder is not required to create a variation document before carrying out the required work, should it be of an urgent nature and it is not reasonably practical to do so.
As a home owner, it is essential you determine if a variation will affect your home warranty insurance policy. For any residential building work over the value of $3,300, your builder is required to take out home warranty insurance on your behalf. This provides you with protection against non-completion, defective work or building subsidence.
When a variation occurs, there are major points to understand which relate to your home warranty insurance coverage:
- Should the contract variations increase the value of your project by $5000 or more, your builder will need to pay an additional premium before commencing any related work.
- If the total value of the variations of under this amount, it is not necessary to adjust the policy. However, you may request your builder pay an additional premium so your policy reflects the true value of the work.
- Accordingly, should contract variations decrease the value of your project, written authority can be provided by the builder, which may result in a partial refund of the premium paid.
