Rise-and-Fall Clauses

The words 'fixed price' are reassuring. But the title on the contract does not tell you every circumstance in which the price can move. In periods of changing labour and material costs, price-adjustment clauses deserve careful attention.

Fixed price does not always mean immovable price

A fixed-price contract can still contain mechanisms that alter the amount ultimately payable: variations, allowances, latent conditions, statutory changes and, depending on the contract, price-escalation mechanisms.

Identify any rise-and-fall or escalation clause

Look for clauses dealing with increases in material costs, labour costs, delays before commencement, expiry of quotation periods, supplier increases or specified indices. Special Conditions may alter the standard form.

Ask what triggers the adjustment

A clause should be understood by reference to its trigger. Is the increase automatic after a date? Does it require evidence of actual cost increase? Is there a formula, percentage, index or cap? Does owner-caused delay affect it?

Timing before commencement can be critical

Long periods between signing and construction can expose both parties to changing prices. Approvals, finance, engineering and selections can all affect commencement. Understand whether a delay shifts price risk to you.

Evidence matters

If a builder is entitled to claim an adjustment, the contractual method of calculation and any supporting evidence matter. Do not assume that a supplier increase automatically entitles the builder to pass through the same amount.

Special Conditions can materially alter risk

A standard-form contract may look familiar while bespoke clauses transfer substantial inflation risk to the homeowner. Read the Special Conditions alongside the printed clauses and schedules. Note that a one-sided price-escalation clause in a standard-form consumer contract may also be subject to the unfair contract terms provisions of the Australian Consumer Law.

Budget for uncertainty where the contract creates it

If a contract legitimately leaves part of the price exposed, model that risk before signing. A project that only works financially if every allowance and escalation risk lands at zero may be under-budgeted.

Questions to ask

Can the contract price increase because labour or materials become more expensive? What triggers the increase? Is there a cap? What evidence is required? Does delay before commencement change the position?

The key lesson

The phrase 'fixed price' is not a substitute for reading the price-adjustment machinery. Know precisely which risks remain variable before committing.

Before You Sign

This guide provides general educational information for South Australian homeowners. It is not personalised legal advice. The effect of any issue depends on the wording of your own contract, schedules, Special Conditions, plans, specifications and the facts of the project. A good builder and a well-understood contract should work together. Before committing to one of the largest financial transactions you may ever undertake, consider having the actual contract reviewed so you understand the obligations, notice requirements and consequences before they are tested on site.

Before You Build. One Signature. One Chance.