Are Cost Plus Contracts Lawful for Residential Building Work in Tasmania?

What it is

A cost plus contract is one where the owner pays the builder's actual costs plus a margin, rather than a price agreed up front. Whether that is even allowed for a home is one of the sharpest points of difference between the states. Tasmania sits at the permissive end.

The Tasmanian position

Cost plus is lawful in Tasmania for residential building work, at any contract price. There is no threshold, no ban and no need for anyone's consent.

That is not an inference from silence. The Residential Building Work Contracts and Dispute Resolution Act 2016 (Tas) names the thing. Section 4 defines a cost-plus contract as a residential building work contract under which the amount the building contractor is to receive cannot be calculated when the contract is entered into. It then defines a fixed-price contract as a residential building work contract that is not a cost-plus contract. The Act treats the two as an exhaustive pair and regulates both.

CBOS says the same to consumers, describing fixed price and cost plus as the two main types of building contract available.

What a compliant Tasmanian cost plus contract must do

Being lawful is not the same as being unconstrained. The Act applies to any residential building work contract priced at $20,000 or more under section 9, and every general obligation applies to a cost plus contract.

Section 14(1)(f) is the key one. Where the contract does not specify a contract price, it must specify a method for calculating the contract price and an estimate of that price, determined in accordance with the method, that is fair and reasonable. A cost plus contract with a method but no estimate, or with an estimate pitched low to win the job, does not comply. The penalty runs to 800 penalty units for a body corporate.

Variations are handled differently for cost plus work. Under section 4 an addition or omission is a variation only if it is not reasonably contemplated by the contract. Where a variation document is needed, section 18(2)(f) requires it to state a fair and reasonable estimate of the costs associated with the addition or omission, rather than the changed contract price a fixed-price contract must state.

The payment restrictions still bite

This is where cost plus builders come unstuck. Section 42 prohibits demanding or receiving any amount other than a deposit unless the amount is directly related to the progress of the performance of the work at the building site. That rule does not bend for cost plus. An invoice for costs incurred is not automatically payable in Tasmania simply because the cost was real. It has to track progress on site.

The deposit cap also applies, and section 41(3) closes the obvious gap: a reference to the contract price includes, for a cost-plus contract, a reference to the estimated amount. A builder cannot escape the cap by leaving the price open.

Section 78 voids any arrangement whose purpose or effect is to defeat, evade or avoid the Act's requirements, along with any exclusion or waiver of a right it confers.

How the states actually differ

This is the part worth carrying between jurisdictions, because assuming a single national rule here will get a builder in trouble.

• Tasmania: lawful at any price. Definitions in section 4, fair and reasonable estimate under section 14(1)(f), progress payment rule under section 42.
• New South Wales: lawful, and expressly so. Section 8A(2)(b) authorises progress payments for work already performed or costs already incurred, supported by invoices or receipts, with a margin expressly permitted.
• Victoria: the most restrictive. Cost plus is permitted only at $1,000,000 or more under regulation 10(b), or for certain renovation work.
• Queensland: no cost plus prohibition at all in Schedule 1B of the QBCC Act.
• Western Australia: cost plus is excluded from the definition of a home building work contract in section 3(1) of the Home Building Contracts Act 1991, so the Act's deposit and progress payment rules simply do not reach it.

Tasmania and Queensland look alike on permission. Tasmania and Western Australia do not look alike at all. Western Australia lets cost plus out of the statutory payment regime. Tasmania keeps it firmly inside, which makes section 42 the single provision a Tasmanian cost plus builder is most likely to breach.