Changes to your Building Project: What Sections 37 and 38 of the Domestic Building Contracts Act require, and What Happens if Builders Fail to Formally Issue Variation Notices?

Almost every building project changes after the contract is signed. For example, an owner may decide that they want a larger window, or a product is discontinued, or the plans turn out not to work on the site, or the building surveyor requires works to be amended to comply with the regulations.

This is called a variation, being a change to the plans or specifications after the contract has been entered into, and either party may request it. Variations are the most common source of the domestic building disputes we act in, though the change itself is rarely what the parties are really fighting about. The dispute arises because it was never written down in the way the law requires, and by then the relationship has broken down. The owner says it was never approved and never priced. The builder says the owner asked for it and now will not pay. However, neither the owner nor the builder has any written documents substantiating an agreement for the variation.

The core requirement of both section 37 (builder-requested variations) and section 38 (owner-requested variations) of the Domestic Building Contracts Act 1995 (Vic) (Act) are identical. Before any varied works are performed, the change must be described in writing, priced in writing and signed off by the parties.

Section 37 of the Act: Builder initiated variations

When a builder needs to vary the contract, they must first give the owner a formal notice. This notice must detail the specific change, the reason for it, its effect on the structure, whether a permit variation is required, any estimated delays, and the exact cost impact. The builder cannot start the work until the owner signs and returns a consent form attached to that notice. The only exception is a narrow emergency rewrite ordered by a building surveyor due to circumstances beyond the builder's control.

Section 38 of the Act: Owner initiated variations

When an owner wants a change, the Act technically requires them to give the builder a written notice outlining the request. In reality, owners rarely do this. Instead, they usually request changes verbally or via text messages.

The builder is then required to respond in writing by either refusing the change with an explanation, or pricing it and stating its impact on the timeline and permits. Any variations must not proceed until the owner signs the variation notice.

The builder is not required to issue a variation notice if a variation is requested by the owner and the builder reasonably believes the change will not require a permit, will not cause any delays, and will cost less than 2% of the original contract price.

What happens if the variation is not documented?

If a builder fails to comply with the rules set out in sections 37 and 38 of the Act, the builder is not entitled to be recover any money for the variation, not even a reduced amount or the cost of the materials (sections 37(3) and 38(6) of the Act).

There is one exception to this rule, which is if the Victorian Civil and Administrative Tribunal (VCAT) is satisfied that there are exceptional circumstances or that the builder would suffer a significant or exceptional hardship, and that recovery would not be unfair to the owner. Any amounts awarded are confined to the cost of the variation plus a reasonable profit.

The difficulty with this is that it is the builder who bears all the risk and cost of proving their case at a hearing, which rarely makes sense for small amounts like a $10,000 variation. Even if they win, their payout is capped. They will not get their original quoted price or profit margin. Instead, they only get the bare cost of the work plus whatever small profit VCAT allows, which usually requires paying for an expensive expert report first.

A significant case in Victoria regarding claiming of variations is Mann v Paterson Constructions Pty Ltd HCA 32. Before this case, lawyers previously relied on a legal principle called quantum meruit to claim the fair value of any extra work performed, even if it wasn't in writing. This loophole is now closed. The High Court in this case, made it clear that if a builder fails to get a variation signed in writing, they cannot use quantum meruit to escape the rules of the Act.

Can a special condition get around sections 37 and 38 of the Act?

No. Many builders think they can insert a "special condition" into the back of a contract to bypass the law, but a recent case, Stewart v Sherridon Pty Ltd [2024] VCC 1023, proved that this does not work. In that case, a special condition clause was inserted into the Contract which allowed the builder to amend the siting of the works at its sole discretion without issuing a variation notice. The builder amended the plans moving the structure about a metre and built accordingly.

The County Court held that the variation was invalid. Even with the special condition clause in the Contract, the builder was still required to follow Sections 37 or 38 of the Act. The Court also clarified that marked-up drawings, updated plans, or revised selection sheets do not constitute a variation notice under section 37(1) of the Act. Any changes must be described explicitly in written English, not just indicated by moving lines on an amended drawing.

What changes are there from 1 December 2026?

If you are signing a domestic building contract after 1 December 2026, the Domestic Building Contracts Amendment Act 2025 (Vic) completely re-writes the rules for project changes. For contracts signed before this date, the old rules apply for the life of the build, meaning both legal systems will run side-by-side for years. From this date onwards, the confusing back-and-forth of "notices" and "consents" disappears. Instead, any change to the plans or specifications, regardless of who initiated it, must be documented in a single, unified "Variation Agreement". This agreement must be written in plain English, fully priced, dated, state the exact reason for the change, and be signed by both parties before any tools touch the work.

For builders, the paperwork burden is now entirely your responsibility. Owners are no longer legally required to request changes in writing. Rather, the onus is on the builder to officially draft the agreement, even if the variation was entirely the owner's idea. The old "2% shortcut" will be completely abolished and there is no longer a safety net for minor site adjustments. Whether it is a $200 tap upgrade or a $20,000 structural change, a formal agreement must be signed first. The only exceptions are incredibly narrow emergencies, such as a formal building order or an urgent health and safety risk on site.

For both owners and builders, the financial stakes of getting this wrong are severe. If a variation is performed without a signed agreement, the builder is strictly prohibited from charging for it, and the owner is not required to pay. Of course, this remains subject to the narrow exception mentioned above, where VCAT has the final discretion to order a payment from the owner to the builder if exceptional hardship or circumstances can be proven.

To make the stakes even higher, the upcoming Consumer Legislation Amendment Bill 2026 (which is currently before Parliament and has not been passed yet) proposes to make performing an undocumented variation of $5,000 or more a criminal offence. This makes it ever so important for builders to ensure that all every single variation is locked down in writing and signed before any variation works are performed.

Key Takeaway

For builders, a signed Variation Agreement must be treated as a strict green light to start work, never as paperwork to clean up at the end of a project. For owners, requests should always be put in writing, and no work should be allowed to begin until the change is fully priced and signed off. Remember, every variation impacts the project’s timeline just as much as its budget. Neither sides should ever assume that a handshake deal is safe. If a change is not documented before the tools come out, both parties are exposing themselves to potential legal disputes which can turn into an expensive exercise.

Every project is different and every dispute turns on its own facts.

If you need advice about a variation claim, the notice requirements under sections 37 or 38 of the Act, or a domestic building dispute more generally, please contact our office. We act for both owners and builders, including before VCAT and the Courts, and will be happy to assist you to maximise the outcome you can achieve.