Browse Forums Renovation + Home Improvement 1 Feb 16, 2015 10:22 pm Hello, We are currently obtaining quotes for a major renovation (80m2 extension for ground floor & 80m2 for 1st floor addition) (this will be our first renovation) One builder that we saw recently said that he worked either on a fixed cost contract or a cost plus contract. What are the pro's & con's to both? Builder said that sometimes it works out more economical on a cost plus arrangement but i am not so sure as don't want to risk the budget blowing out. But on the one hand, we could end up paying more than we need to on a fixed contract Thanks! Re: Fixed cost contract v Cost plus contract 2Feb 16, 2015 10:50 pm You've basically answered your own question. It comes down to risk. The job will end up costing whatever it costs. Do you want to be the one to take the risk of cost overruns, or do you want the builder to take the risk? Cost plus can have advantages such as making changes without being stung with huge variations, and you can choose to supply your own materials and organise your own subtrades. Fixed price obviously gives you contractual financial security, but you need to make sure absolutely every item of work is well documented in the drawings, specification and contract. Otherwise you (and the builder for that matter) could be completely on different pages, resulting in variations and contract disputes. It comes down to how risk-averse you want to be. How much can you afford to lose if things take longer and cost more than you had planned. There are other methods such as "Guaranteed Maximum Price" whereby it is essentially cost-plus with a cap. So the risk is somewhat shared to a degree. Re: Fixed cost contract v Cost plus contract 3Feb 18, 2015 3:08 pm Firstly, you can't have the best of both worlds. Secondly I thought cost plus contracts were pretty much out lawed unless there was genuine circumstances with many unforeseen things. Maybe that's only in QLD?? I'll flick through some T's & C's but I'm pretty sure a builder can't just offer either as he pleases Re: Fixed cost contract v Cost plus contract 4Feb 18, 2015 3:10 pm Ive had 2 builders offer me cost plus recently. I think they offered 15 percent cost plus from memory Re: Fixed cost contract v Cost plus contract 5Feb 18, 2015 3:13 pm 1960sModernistHome Cost plus can have advantages such as making changes without being stung with huge variations, and you can choose to supply your own materials and organise your own subtrades. . I wouldn't say this is a given. The builder could still disallow your materials or sub trades. Besides, if you want to organise your own materials and subtrades then why do you need a builder? Either get an OB License or simply hire a Builder as a Project manager. Also, not sure if people realise, but any materials or sub trades supplied by the owner don't receive any warranty from the builder Re: Fixed cost contract v Cost plus contract 6Feb 18, 2015 6:41 pm 33amc 1960sModernistHome Cost plus can have advantages such as making changes without being stung with huge variations, and you can choose to supply your own materials and organise your own subtrades. . I wouldn't say this is a given. The builder could still disallow your materials or sub trades. Besides, if you want to organise your own materials and subtrades then why do you need a builder? Either get an OB License or simply hire a Builder as a Project manager. Also, not sure if people realise, but any materials or sub trades supplied by the owner don't receive any warranty from the builder They couldn't disallow as long as the materials are fit for purpose and meet all required Australian Standards, and/or the sub trades that you want to use are duly licensed and qualified. There's whole sections of consumer law that preclude exclusive trading and so on. But it would be something that would ideally be agreed upon, at least in principle, before you were to enter into an agreement so that everybody is clear. If you were to supply your own materials it would be perfectly reasonably for the builder to not warrant the materials, they would still need to warrant their workmanship though. Similarly, if you engaged a plumber on your own, you could not expect the builder to organise the plumber or take any responsibility for the plumber or his/her plumbing work. There is nothing wrong with either method of contract, and both are to my knowledge perfectly legal as long as they meet the fair and reasonable test of common law in Australia - as with literally any contract. As long as both parties clearly understand the terms and each other's obligations under the contract, what's the problem? I personally would be quite willing to, and have done before, hired a builder on a cost-plus agreement, because I am very particular. If I didn't like the way something was done, I just ask the builder to change it. He doesn't care, because he's getting paid by the hour. I get what I want, exactly the way I want it, and he gets paid for his time and materials with a fixed profit margin. Building Services Engineer Renovating our 1960's modernist home in Brisbane https://forum.homeone.com.au/viewtopic.php?f=53&t=82091 Re: Fixed cost contract v Cost plus contract 7Feb 18, 2015 6:54 pm One problem I see with cost+ is some builders keep printing invoices for "Absolute Rubbish" (LOL site cleaning twice a week?) and you have to pay...For this reason Banks dont like Cost+ contracts generally they allow for a 30% overrun. BTW, what was your Quote Approx? in Perth would be around $350K Designer,Engineer (Civil,Const & Envir),Builder,Concrete & Masonry Contract.Struct Repairs Re: Fixed cost contract v Cost plus contract 8Feb 18, 2015 7:22 pm Yes, I guess I should add, and probably should have said this in my first post, I would only do cost plus with a builder who I already knew well and trusted, and I probably wouldn't go with a cost plus for a large project like the one the OP is planning. We are doing our renovations in bite sized pieces using our own money, so cost plus suits us. If I were doing a large project I would spend the money to employ an architect or building designer, meticulously plan and document the work, and get 2 or 3 builders to price it on a fixed price contract. Building Services Engineer Renovating our 1960's modernist home in Brisbane https://forum.homeone.com.au/viewtopic.php?f=53&t=82091 Re: Fixed cost contract v Cost plus contract 9Feb 18, 2015 8:42 pm 1960sModernistHome 33amc 1960sModernistHome Cost plus can have advantages such as making changes without being stung with huge variations, and you can choose to supply your own materials and organise your own subtrades. . I wouldn't say this is a given. The builder could still disallow your materials or sub trades. Besides, if you want to organise your own materials and subtrades then why do you need a builder? Either get an OB License or simply hire a Builder as a Project manager. Also, not sure if people realise, but any materials or sub trades supplied by the owner don't receive any warranty from the builder They couldn't disallow as long as the materials are fit for purpose and meet all required Australian Standards, and/or the sub trades that you want to use are duly licensed and qualified. There's whole sections of consumer law that preclude exclusive trading and so on. But it would be something that would ideally be agreed upon, at least in principle, before you were to enter into an agreement so that everybody is clear. If you were to supply your own materials it would be perfectly reasonably for the builder to not warrant the materials, they would still need to warrant their workmanship though. Similarly, if you engaged a plumber on your own, you could not expect the builder to organise the plumber or take any responsibility for the plumber or his/her plumbing work. There is nothing wrong with either method of contract, and both are to my knowledge perfectly legal as long as they meet the fair and reasonable test of common law in Australia - as with literally any contract. As long as both parties clearly understand the terms and each other's obligations under the contract, what's the problem? I personally would be quite willing to, and have done before, hired a builder on a cost-plus agreement, because I am very particular. If I didn't like the way something was done, I just ask the builder to change it. He doesn't care, because he's getting paid by the hour. I get what I want, exactly the way I want it, and he gets paid for his time and materials with a fixed profit margin. I agree that it all comes down to what's agreed on, but what I'm saying is that the builder may not allow certain aspects to be out sourced by the client and therefore no deal, no contract. I'm pretty sure a builder can't be forced to build a house for you. There are plenty of reasons why a builder may refuse some of the clients terms, but generally must are pretty flexible to work with. You will find the bigger volume ones are pretty inflexible. After all I can't take my own tin of paint to Toyota and tell them they have no right to refuse it Re: Fixed cost contract v Cost plus contract 10Feb 18, 2015 8:51 pm Well yeah, but i didn't feel it necessary to state the obvious. No one is under an obligation to enter into any contract if they don't agree with the terms Building Services Engineer Renovating our 1960's modernist home in Brisbane https://forum.homeone.com.au/viewtopic.php?f=53&t=82091 Re: Fixed cost contract v Cost plus contract 11Feb 18, 2015 9:19 pm Here, I found it a little quicker than I thought..... QUOTE............ ‘…the use of a Cost Plus Contract in residential construction is to be very specifically confined to instances of absolute necessity, that is, where the condition of the physical premises is, in substantial respects, in doubt.’ Section 55 of the Domestic Building Contracts Act 2000 says that a Builder must not (emphasise…MUST NOT!) enter into a Cost Plus Contract unless the cost of a substantial part of the work cannot reasonably be calculated without some of the work being carried out. If (emphasis…IF) that is the case, then the Builder may enter into a Cost Plus Contract BUT... the contract must contain a fair and reasonable estimate of the total amount that is likely to receive under the contract. END QUOTE Re: Fixed cost contract v Cost plus contract 12Feb 18, 2015 9:22 pm 1960sModernistHome Well yeah, but i didn't feel it necessary to state the obvious. No one is under an obligation to enter into any contract if they don't agree with the terms Once again correct, so therefore a builder can disallow building using your materials. Of course they can't if it's already listed in the contract, but I also didn't feel the need to state the obvious Re: Fixed cost contract v Cost plus contract 14Feb 18, 2015 9:51 pm For me personally, I don't have the time to do the course, but I also haven't done any projects on my house requiring permits yet. I wouldn't hire a builder as a project manager because I've been around the construction industry since I was old enough to carry my Dad's tools around for him on school holidays, I'm an engineer and a former project manager myself, so I basically only need a builder for their construction expertise, to physically do the work to a higher standard than I could, and to run ideas past and so on. Between myself and my wife who has studied architecture we're competent enough to do most of the design and coordination work ourselves and are happy to do it. I recognize that most people don't have the level of exposure that we have to the design and construction sectors so these methods may not work for the average punter who needs a level of certainty when placing their trust (and a lot of money) in a contractor they barely know. If I ever built a new house, and I was in a position to take time off work, I would love to go owner builder. Re: Fixed cost contract v Cost plus contract 15Feb 18, 2015 10:45 pm A builder who offers the project management service would deliver on your needs. You will save on the builders margin imposed under a contract, and get the better results you were looking for. The Cost plus contract as I said is pretty much out lawed unless some pretty unusual circumstances exist. I'm pretty gob smacked to hear it seems like a common thing people seek. Re: Fixed cost contract v Cost plus contract 16Feb 18, 2015 11:25 pm A good friend of mine that I last worked for fifteen years ago does all his work as cost plus and has for twenty odd years. Last year he finished a townhouse development that ran to $9mil. He gives clients a rough quote and most of them come under ( extras notwithstanding ). All his work is word of mouth. Stewie Re: Fixed cost contract v Cost plus contract 17Feb 19, 2015 7:17 am I'm sure a builder could provide these services perfectly well, but what I'm saying is I don't want to pay them to do stuff that I can do, e.g. organise other trades, etc. I just want to pay them to build stuff. I'm more than happy to design and project manage. In fact, I'd prefer to. It gives me the control to ensure the job runs how I want it to, and I get the results I want. I hand pick the best subtrades I know and coordinate them to make sure I get a schmick result. Whether you pay a builder a project management fee or you pay a builder's margin on services, materials and subtrades, it's essentially the same thing at the end of the day. You've mentioned a couple of times that you thought cost plus contracts has been outlawed, I'm curious to know where you heard that? Last year I did post grad study in construction and contract law at Griffith Uni and we discussed cost plus contracts in a bit of detail, the lecturer never mentioned anything about that? Building Services Engineer Renovating our 1960's modernist home in Brisbane https://forum.homeone.com.au/viewtopic.php?f=53&t=82091 Re: Fixed cost contract v Cost plus contract 18Feb 19, 2015 8:32 am Cost plus contract is essentially a signed blank cheque It requires a lot of trust (blind trust) Have you got the means to check every invoice and every time sheet and set up control and monitoring systems? I have seen hundreds of hours claimed that could never be verified. As someone who argues against blind trust on this forum I can't recommend it. It does not mean it cannot work well and that it does not have advantages of flexibility, it can and it does but it's risky. 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: Fixed cost contract v Cost plus contract 19Feb 19, 2015 8:37 am Cost plus contracts in Vic. DOMESTIC BUILDING CONTRACTS ACT 1995 - SECT 13 Restrictions on cost plus contracts (1) A builder must not enter into a cost plus contract unless— (a) the contract is of a class allowed by the regulations for the purposes of this section; or (b) the work to be carried out under the contract involves the renovation, restoration or refurbishment of an existing building and it is not possible to calculate the cost of a substantial part of the work without carrying out some domestic building work. Penalty: 100 penalty units. (2) A builder must not enter into a cost plus contract that does not contain a fair and reasonable estimate by the builder of the total amount of money the builder is likely to receive under the contract. Penalty: 100 penalty units. (3) If a builder fails to comply with this section— (a) the builder cannot enforce the contract against the building owner; but (b) the Tribunal may award the builder the cost of carrying out the work plus a reasonable profit if the Tribunal considers that it would not be unfair to the building owner to do so. 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: Fixed cost contract v Cost plus contract 20Feb 19, 2015 8:58 am My parents built four new, high spec large new custom homes over the space of 6-7 years, all with cost plus contracts. The critical thing was that they used a builder who they had known for a long time, my dad (a plumbing/gas contractor) and the builder had worked together for decades, and with whom had a very high level of mutual trust, they agreed on certain terms prior to entering into it, and they kept a leash on the budget. It worked very well for them. It's just a case of buyer beware. If you are confident that it can work for you and you are knowing and accepting of the risks, then all power to you. If you're a little unsure, stay away!!! Building Services Engineer Renovating our 1960's modernist home in Brisbane https://forum.homeone.com.au/viewtopic.php?f=53&t=82091 Alternatively, you can sign a contract with pre-defined known amount you pay to the builder for management and warranties and then you just pay the invoices their provide… 2 5047 Are you saying that these consultants are involved at key-points of the building, and perform site inspects at the stages, or only after building is completed to point… 4 8512 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 2127 |