Browse Forums General Discussion 1 Sep 25, 2021 8:41 pm We are building a new custom build and have recently considered a cost plus contract in consideration of the current issues in delay of materials e.g. timber. We are looking at the contract template provided by the Master Builders Association and wondered if anyone has experience of using this kind of template. TIA for any information. Re: New Build Contracts 2Sep 27, 2021 6:16 am Jacinta Rich We are building a new custom build and have recently considered a cost plus contract in consideration of the current issues in delay of materials e.g. timber. We are looking at the contract template provided by the Master Builders Association and wondered if anyone has experience of using this kind of template. TIA for any information. Hi Jacinta First congrats on your new build. Very exciting! Your post has made me extremely nervous for you. Cost plus contracts can work well in certain circumstances, but I fear that going cost plus in such a volatile environment puts all the risk on you, and could end up costing you a ton of money. Without knowing the background to your individual circumstances, my guess is that the builder has priced in a lot of risk regarding the current cost of timber. If I am correct, then it wouldn't make sense to open up all of the other trades in your build to a cost plus arrangement. In a custom build there are a number of key areas you want some control over so you can enjoy the experience of shopping and finding deals, these include tiles, floor coverings, blinds, appliances, bathroom fixtures and fittings. My recommendation is to make these categories above and the timber provisional sum items. This effectively makes only these items cost plus and you get the benefit of costs savings and conversely you wear the risk on these items only. Under this arrangement the builder needs to make a full account for these items. Not sure what state you are in, but in NSW I would recommend the fair trading contract. It's the fairest for both parties and easily allows for this arrangement. all the best Simeon Architectural Homes & Duplexes - specialising in custom designing homes to your budget Get a Free Onsite Consultation Today or send a PM for information, questions or advice. Re: New Build Contracts 3Sep 29, 2021 8:47 am Ashington Homes Jacinta Rich We are building a new custom build and have recently considered a cost plus contract in consideration of the current issues in delay of materials e.g. timber. We are looking at the contract template provided by the Master Builders Association and wondered if anyone has experience of using this kind of template. TIA for any information. Hi Jacinta First congrats on your new build. Very exciting! Your post has made me extremely nervous for you. Cost plus contracts can work well in certain circumstances, but I fear that going cost plus in such a volatile environment puts all the risk on you, and could end up costing you a ton of money. Without knowing the background to your individual circumstances, my guess is that the builder has priced in a lot of risk regarding the current cost of timber. If I am correct, then it wouldn't make sense to open up all of the other trades in your build to a cost plus arrangement. In a custom build there are a number of key areas you want some control over so you can enjoy the experience of shopping and finding deals, these include tiles, floor coverings, blinds, appliances, bathroom fixtures and fittings. My recommendation is to make these categories above and the timber provisional sum items. This effectively makes only these items cost plus and you get the benefit of costs savings and conversely you wear the risk on these items only. Under this arrangement the builder needs to make a full account for these items. Not sure what state you are in, but in NSW I would recommend the fair trading contract. It's the fairest for both parties and easily allows for this arrangement. all the best Simeon Hello Simeon. Many thanks for your input. Very interesting. Jacinta Re: New Build Contracts 4Sep 29, 2021 3:46 pm Jacinta Rich Ashington Homes Jacinta Rich We are building a new custom build and have recently considered a cost plus contract in consideration of the current issues in delay of materials e.g. timber. We are looking at the contract template provided by the Master Builders Association and wondered if anyone has experience of using this kind of template. TIA for any information. Hi Jacinta First congrats on your new build. Very exciting! Your post has made me extremely nervous for you. Cost plus contracts can work well in certain circumstances, but I fear that going cost plus in such a volatile environment puts all the risk on you, and could end up costing you a ton of money. Without knowing the background to your individual circumstances, my guess is that the builder has priced in a lot of risk regarding the current cost of timber. If I am correct, then it wouldn't make sense to open up all of the other trades in your build to a cost plus arrangement. In a custom build there are a number of key areas you want some control over so you can enjoy the experience of shopping and finding deals, these include tiles, floor coverings, blinds, appliances, bathroom fixtures and fittings. My recommendation is to make these categories above and the timber provisional sum items. This effectively makes only these items cost plus and you get the benefit of costs savings and conversely you wear the risk on these items only. Under this arrangement the builder needs to make a full account for these items. Not sure what state you are in, but in NSW I would recommend the fair trading contract. It's the fairest for both parties and easily allows for this arrangement. all the best Simeon Hello Simeon. Many thanks for your input. Very interesting. Jacinta You are welcome Jacinta. Architectural Homes & Duplexes - specialising in custom designing homes to your budget Get a Free Onsite Consultation Today or send a PM for information, questions or advice. Re: New Build Contracts 5Oct 13, 2021 2:30 pm Jacinta Rich We are building a new custom build and have recently considered a cost plus contract in consideration of the current issues in delay of materials e.g. timber. We are looking at the contract template provided by the Master Builders Association and wondered if anyone has experience of using this kind of template. TIA for any information. Hi @Jacinta Rich Contracts issued by the Master Builders Association are generally written to favor builders, hence, you need to go over it thoroughly and give it careful consideration. It may be a good idea to engage a specialist construction lawyer in your area, who is experienced in contract review. They can study your contract and give you the relevant legal advice. It would be ideal to enter into a fixed price contract. Making a clear scope of work now will reduce the risk of uncertainty that naturally comes with a cost plus contract. Cheers, John Get sound legal advice. We manage Building Disputes, Construction Contracts, Security of Payment. PM for queries. https://www.contractsspecialist.com.au/articles/ Re: New Build Contracts 6Oct 14, 2021 8:58 am Jacinta Rich We are building a new custom build and have recently considered a cost plus contract in consideration of the current issues in delay of materials e.g. timber. We are looking at the contract template provided by the Master Builders Association and wondered if anyone has experience of using this kind of template. TIA for any information. If you are in Victoria cost plus contract for homes are prohibited unless they are for more than $500,000 If you are looking at CP contract for price control then you are delusional, it's like giving a blank cheque. You will generally not have knowledge and expertise to manage and control builder under CP contract and the builder won't care about what it costs because the fee is percentage of cost. CP contract is suitable under narrow set of circumstances, where the house is unique, you require flexibility during build, you expect higher quality and where you pockets are deeper. Foremost Building Expert in Australia,assisting with building problems/disputes, building stage inspections,pre-contract review advice for peace of mind 200 blogs http://www.buildingexpert.net.au/blog Re: New Build Contracts 7Oct 14, 2021 1:17 pm Thank you so much for your input. Our current issue is that materials are either in short supply or the cost fluctuations are massive due to issues with supply and the impact of COVID on manufacturing and import of materials. We have been informed of this by at least 3 builders, our draftsman and a couple of independent suppliers of materials. So it's a consistent story throughout. If we decide on fixed price, our builder has stated the cost will be inflated to a point he is not comfortable with but needs to be so when considering issues with materials and supply at the moment. I know I am simplifying the explanations but can see the point from all perspectives. It leaves us in a quandary. Re: New Build Contracts 8Oct 14, 2021 1:48 pm Jacinta Rich Thank you so much for your input. Our current issue is that materials are either in short supply or the cost fluctuations are massive due to issues with supply and the impact of COVID on manufacturing and import of materials. We have been informed of this by at least 3 builders, our draftsman and a couple of independent suppliers of materials. So it's a consistent story throughout. If we decide on fixed price, our builder has stated the cost will be inflated to a point he is not comfortable with but needs to be so when considering issues with materials and supply at the moment. I know I am simplifying the explanations but can see the point from all perspectives. It leaves us in a quandary. Jacinta There are certain materials that are in short supply, but it's mainly with timber and then some PC items like taps and toilets. But I disagree with what you have been told, in that you need to be charged an inflated price to account for the builder's risk. Sorry, but I feel very strongly about this. The builder's risk is covered by their margin. We have numerous builds underway and yes, some items have been out of stock but we are just working with our clients and suppliers to find alternatives. There certainly isn't enough of a concern for us as a business that we need to switch our up coming contracts to cost plus, as that would be very unfair for our customers who have finance locked in. Again, the items your builder can't price accurately now could easily be made provisional sums to take into account price variations whilst they lock in the prices on the 95% of items that aren't in short supply, like concrete, bricks, windows, roofing materials, tiles, carpet, paint, plumbing items etc Anyway, you go with what ever feels right for you, just be aware of the risks that your build could totally blow out if your builder has no incentive to keep a tight control on costs. EDIT: I am adding this edit as I realised that I didn't fully explain why I think provisional sums are the best method for controlling the uncertainty for both parties. So with a provisional sum ( PS) the builder needs to include the contract a realistic quantity and rate/sqm for the item. For instance, you might have a paver shown on your landscape plan but you haven't picked the exact range, but you know it is going to be a feature so it will be expensive. Therefore you agree on a rate of $150/sqm. The builder also measures the paved area on the plans and comes up with 50sqm. Total $7,500. These figures go in the contract. However, when you come to the paving stage, you might find a great deal on a paver that actually costs $130/sqm but you choose to pave 60sqm instead. This totals $7,800. The builder will invoice you the additional $300 but has to show you receipts and under the contract we use, you are given the opportunity to visit site and watch the pavers being installed to make sure you are getting what you paid for. The builder will do an adjustment to the contract total. There is no reason why this couldn't be used for framing timber as well. The builder will be able to measure how many lineal meters of 90x45 they need and include the current lineal meter rate. You could also include a provision/clause for the builder to get 3 quotes. The reason I wouldn't do cost plus is that builders can be notoriously awful when wasting building materials, for instance over ordering concrete, bricks and steel except for when those costs are coming out of their pockets. Waste management is a very expensive component in building ( we typically allow between $12-16k per job for skips). When we have a fixed price for waste management we make sure every skip is jam packed like a game of tetris rather then just ordering another one at $700 a pop. If you are simply paying cost plus for these items it's going to be so easy for your builder to spend your money. Anyway, I wish you all the best for your journey. Cheers Simeon Architectural Homes & Duplexes - specialising in custom designing homes to your budget Get a Free Onsite Consultation Today or send a PM for information, questions or advice. Re: New Build Contracts 9Oct 14, 2021 2:11 pm You are between a rock and a hard place. Building costs will escalate an no one can do much about that. If you want cost certainty then you will ask your builder to take a chance on cost and you will pay a premium. I think Simeon has given you the best answer, use items in doubt as provisional sums (cost escalation clause). You won't get a cost certainty but you will get accountability of the cost because the builder will have to provide evidence of cost. This way you will have a lump sum contract wit a cost plus component (provisional sums). Foremost Building Expert in Australia,assisting with building problems/disputes, building stage inspections,pre-contract review advice for peace of mind 200 blogs http://www.buildingexpert.net.au/blog Re: New Build Contracts 10Oct 14, 2021 8:55 pm Ashington Homes Jacinta Rich Thank you so much for your input. Our current issue is that materials are either in short supply or the cost fluctuations are massive due to issues with supply and the impact of COVID on manufacturing and import of materials. We have been informed of this by at least 3 builders, our draftsman and a couple of independent suppliers of materials. So it's a consistent story throughout. If we decide on fixed price, our builder has stated the cost will be inflated to a point he is not comfortable with but needs to be so when considering issues with materials and supply at the moment. I know I am simplifying the explanations but can see the point from all perspectives. It leaves us in a quandary. Jacinta There are certain materials that are in short supply, but it's mainly with timber and then some PC items like taps and toilets. But I disagree with what you have been told, in that you need to be charged an inflated price to account for the builder's risk. Sorry, but I feel very strongly about this. The builder's risk is covered by their margin. We have numerous builds underway and yes, some items have been out of stock but we are just working with our clients and suppliers to find alternatives. There certainly isn't enough of a concern for us as a business that we need to switch our up coming contracts to cost plus, as that would be very unfair for our customers who have finance locked in. Again, the items your builder can't price accurately now could easily be made provisional sums to take into account price variations whilst they lock in the prices on the 95% of items that aren't in short supply, like concrete, bricks, windows, roofing materials, tiles, carpet, paint, plumbing items etc Anyway, you go with what ever feels right for you, just be aware of the risks that your build could totally blow out if your builder has no incentive to keep a tight control on costs. EDIT: I am adding this edit as I realised that I didn't fully explain why I think provisional sums are the best method for controlling the uncertainty for both parties. So with a provisional sum ( PS) the builder needs to include the contract a realistic quantity and rate/sqm for the item. For instance, you might have a paver shown on your landscape plan but you haven't picked the exact range, but you know it is going to be a feature so it will be expensive. Therefore you agree on a rate of $150/sqm. The builder also measures the paved area on the plans and comes up with 50sqm. Total $7,500. These figures go in the contract. However, when you come to the paving stage, you might find a great deal on a paver that actually costs $130/sqm but you choose to pave 60sqm instead. This totals $7,800. The builder will invoice you the additional $300 but has to show you receipts and under the contract we use, you are given the opportunity to visit site and watch the pavers being installed to make sure you are getting what you paid for. The builder will do an adjustment to the contract total. There is no reason why this couldn't be used for framing timber as well. The builder will be able to measure how many lineal meters of 90x45 they need and include the current lineal meter rate. You could also include a provision/clause for the builder to get 3 quotes. The reason I wouldn't do cost plus is that builders can be notoriously awful when wasting building materials, for instance over ordering concrete, bricks and steel except for when those costs are coming out of their pockets. Waste management is a very expensive component in building ( we typically allow between $12-16k per job for skips). When we have a fixed price for waste management we make sure every skip is jam packed like a game of tetris rather then just ordering another one at $700 a pop. If you are simply paying cost plus for these items it's going to be so easy for your builder to spend your money. Anyway, I wish you all the best for your journey. Cheers Simeon Hi again Simeon, I really thank you for taking the time to comprehensively explain your reasons. It makes for really interesting reading and I'll certainly be taking into account your generous sharing of information. Thanks again. Jacinta Re: New Build Contracts 11Oct 14, 2021 8:57 pm building-expert You are between a rock and a hard place. Building costs will escalate an no one can do much about that. If you want cost certainty then you will ask your builder to take a chance on cost and you will pay a premium. I think Simeon has given you the best answer, use items in doubt as provisional sums (cost escalation clause). You won't get a cost certainty but you will get accountability of the cost because the builder will have to provide evidence of cost. This way you will have a lump sum contract wit a cost plus component (provisional sums). Thanks so much for your help and information. Jacinta MBA and HIA both have sub contract agreements, check them out 2 6017 Industry type domestic contracts are prepared by industry bodies for the benefit of the builders. This means that if you are the owner watch out. One of the points is… 0 1999 Thank you so much everyone. This all makes a lot of sense. I guess when you talk to a builder who butters up everything to look very polished, you get to start believing… 8 2222 |