Are Cost Plus Contracts Lawful in the Northern Territory?

What it is

A cost plus contract prices the job at whatever it actually costs, plus an agreed margin. There is no fixed total at signing. The owner carries the risk of the cost and the builder carries the risk of getting paid for it.

The NT answer, and how it is reached

The Northern Territory has no provision saying cost plus is prohibited. Search the Building Act 1993 (NT) and the Building Regulations 1993 (NT) and the phrase does not appear anywhere. The prohibition is an effect rather than a label, produced by three rules working together.

First, regulation 41H(d) requires a residential building contract to specify the extent of the work and the total contracted price for the work. A price you will know later is not a total contracted price.

Second, regulation 41HE(2) says a contractor must not request or receive a payment except as a progress payment after completion of the stage to which it relates, and must not request or receive more than the percentage of the total contracted price specified in the contract. Cost plus invoices costs as they land. That is not a stage payment, and there is no percentage of a total to measure it against.

Third, regulation 41HD makes it a regulatory offence to enter a residential building contract that does not comply with regulation 41H, carrying a maximum penalty of 100 penalty units and a defence of reasonable excuse.

Put together, a genuine cost plus arrangement cannot comply for prescribed building work in the Territory, and entering one is an offence.

The offence is the whole sanction

This is the part that matters commercially. The NT stops at the offence. Nothing in the Act or the Regulations makes a non-compliant residential building contract unenforceable by the builder, or strips the builder of a recovery right. Regulation 41HE(5) lets a court that finds the contractor guilty order a refund of some or all of the deposit or payment, but that is a sentencing power rather than a rule about the contract. The Territory builder who gets this wrong is exposed to prosecution, not to losing the job's value.

Where cost plus is still lawful in the NT

The regime only bites where it applies. Section 48B(1) requires a contract for prescribed building work, and section 48B(3)(a) switches that requirement off where the value of the building work is less than the prescribed amount, which regulation 41J sets at $25,000. Below that figure no written contract is required at all, so nothing in the Regulations constrains how the work is priced. Section 48B(3)(b) switches it off again where the building contractor owns the land.

The cover problem cost plus creates

Section 54AC(2) says a residential builder must not demand or receive payment, whether as a deposit or otherwise, unless an authorised RBI policy or a fidelity certificate is in force and has been given to the other party. Maximum penalty 85 penalty units.

Cover is written against the total contracted price. Regulation 48(b) requires the scheme trust deed to provide that where the total contracted price is varied by an increase or decrease of more than 5 per cent, the builder must apply to the trustees for a reassessment of the amount of cover. A contract with no settled total gives the scheme nothing to price and nothing to measure a 5 per cent movement against. The cover architecture assumes a fixed sum, which is a second reason cost plus and the NT scheme do not fit together.

How the other states differ

In NSW cost plus is expressly lawful. Section 8A(2)(b) of the Home Building Act 1989 authorises a progress payment for labour and materials in respect of work already performed or costs already incurred, which may include the addition of a margin, supported by invoices or receipts and payable on an as invoiced basis. NSW names the model and permits it.

Victoria restricts it and punishes it differently again. Section 13(1) of the Domestic Building Contracts Act 1995 (Vic) says a builder must not enter a cost plus contract unless it is of a class allowed by the regulations, or the work involves renovation, restoration or refurbishment of an existing building and a substantial part cannot be costed without first carrying out some domestic building work. Section 13(2) requires a fair and reasonable estimate of the total the builder is likely to receive. The sanction is the interesting part: under section 13(3)(a) a non-compliant builder cannot enforce the contract against the owner, but section 13(3)(b) still lets VCAT award the builder the cost of the work plus a reasonable profit where it would not be unfair to the owner.

Three models sit within a few hours of each other. NSW authorises cost plus outright. Victoria restricts it, then makes it unenforceable by the builder with a tribunal safety valve. The Territory never names it, blocks it through the mandatory total contracted price and the payment rules, and fines the builder while leaving the contract enforceable.