Fixed Price build Contract Vs Project management build

Hi Suku

The biggest issue with this method is that all risk remains with you and there is no incentive for the project manager to achieve the best price possible by negotiating hard with the trades.

They just get a few quotes and pass them onto you.

Where as if you are on a fixed price contract the builder needs to bring every trade in under budget or close to budget as they are spending their own money.

A recent example for us on a project with a fixed price was that we had allowed $32,000 for gyprock and prices have gone up ( well over $44,000). So we had to leverage everything we could like packaging other projects to get the price back down to our budget otherwise we personally lose $12,000.

If we were just project managing and getting 10% or 15% on top we would have just given the client the big quotes and too bad for them, they would be the ones losing the $12,000.

So basically, unless you have a super complicated job which is very difficult to price then I would always suggest that you protect yourself with a fixed price contract.

Cheers

Simeon

Thanks Suku

You are correct.

There is only one person I have ever recommended going down this route and it was a close mate of mine who was doing a super complicated build on the side of a cliff which involved renovating a 1950's concrete structure and excavating underneath it.

The reason that a fixed price contract would have been worse for him is that as a builder we would have to price in massive contingencies up front where as it would be better to have the trades price each item as we progressed and then he trusted us to negotiate the best deal for him.

An alternative to this ( and we are doing it at the moment) is to have your builder go to trade on all your key items and then lock in a fixed price contract with some contingencies built in.

I hope this makes sense

Cheers

Simeon

But for a regular house

Project management contract (essentially cost plus contract) for domestic construction in Victoria can only be if the cost of the home exceeds 1 Million, unless it is a renovation and it is not possible to reasonably calculate the cost of the build.

I call it a blank cheque contract, forget about blind trust, it may cost you plenty, and it will cost you plenty anyway. That is if you can get the bank to lend you money.

Yes you get the flexibility and control but at a price, and it still does not guarantee builder's performance, or the quality, who is going to check project manager?

Most people overlook the fact that a substantial part of the building works may not be able to be packaged in neat subcontract packages which leaves the work to be done on a day labour, at hourly rates.

The builder may bring in mates, or in any case who is going to check that the work is done expeditiously, and they don't have four "smokos", long lunches, long debates, come late, or leave early, or if indeed they are there on the day? Heard about ghosts?

Some years ago I was assisting a prominent retailer after he had problems with his cost plus build, his builder did not keep accurate records.

There were invoices and time sheets that could not be verified, so he was whistling dixie on a substantial sum of money.

So unless money is no object (which is more than 99% of us) think three times then take a cold shower.

Forget trust, its merely a blindfold on a stupid head and only a dumb luck will save you.