Cost escalation clauses: What Victorian builders must know

With builders suffering financial distress from material price increases related to fixed-price contracts, cost escalation clauses might be the saviour for eligible contracts. Drafted appropriately, a cost escalation clause is an effective mechanism that can account for unexpected costs. A cost escalation clause enables the price of works to be increased for rising material or labour costs, or increased costs caused by the delay of the builder.

Victoria

Unfortunately, cost escalation clauses (also known as a "rise and fall" clause) are prohibited in domestic building works contracts for works valued under $500,000. However, variations for additional works which are outside of the scope of work remain permitted.