Site costs can be a difficult element of a building contract. In most situations, builders will not specify an exact amount for site works, but will nominate a “provisional sum” or best estimate which may be adjusted up or down depending on work actually required. Under the Home Building Contracts Act a builder cannot just guess this provisional amount, or submit an artificially low quotation in an attempt to induce a customer to sign a building contract. Builders are required by law to nominate an amount that they believe is reasonable based on experience and reasonable investigation.
Some builders will do site testing in order to determine their provisional estimate. However, in some circumstances this estimate may still be lower than actual costs incurred when the site works are carried out.
For example, in some areas of Perth such as the hills and northern coastal suburbs, soils can have considerable clay or limestone content which may not be evident from a builder’s preliminary testing. Tree roots may be hidden well below what appears to be a flat sand site and only be discovered when clearing begins. In these circumstances, site work costs could be much higher than originally estimated and the builder would raise a variation order for the additional amount, plus a percentage margin nominated in your contract.
Homebuyers should understand the meaning of provisional sums for site works and allow for any contingencies that may arise in budgeting for a new home.
Allow some margin for this contingency (and others, like extra rent if the project is delayed) rather than borrowing up to a limit and having no spare capacity should the unexpected happen.