Okey dokey – I’m sure I’ve done this before but I’m going to do it again…… here is a handy description of the two most often used contract types and easy ways to explain them to a client.
FIXED PRICE CONTRACT
There are two types of these, labour and materials, and labour only.
Labour and materials are generally an all-inclusive price, however some adjustments can be made but they MUST be spelt out in the description of works that should form pat of the contract. These adjustments could be client supplied items or client managed subcontractors, they may or may not include overall project management as this maybe provided by an independent or the client themselves. A fixed price contract offer should be provided in a tender letter format, outlining the total cost, the tags and clarifications (description), and the terms of engagement. Where a fixed price is provided, there is no requirement for any detail of the cost to be provided. At best, fixed price contracts may include a trade summary of costs and margin does not have to be disclosed unless formal tender documentation has been supplied and this is a contractual requirement.
A labour only fixed price offer should include all of the above, however no trade summary is provided as no materials are included. Tags and clarifications will include how hire items are to be managed, day rates for variations of work, and where the supervisory tasks start and finish. A labour only fixed price contract is a lump sum offer…. Ie no detail of hours should need to be provided.
Charge up is a contract type where works can begin without detailed design work completed (other than that required by council) on an hourly basis for labour only, or an hourly rate plus markup on materials. This type of work MUST have a contract accompanying it, and the contract should outline the following;
What the hourly rate charge out is
The hours of work
The markup on materials and subs
The detail of charging (invoices, timesheets provided) and the frequency of these
The payment terms
How P&G is charged for (onsite overheads that are intangible MIGHT be built into the labour rate, or it might be added as a separate percentage to the totals on the payment claim each month before markup which would be my preference).
You MAY include an estimate of cost and timeframe, however it would be worthwhile having your client sign that document where the paragraph that this is understood to be an estimate only is included…..
Remember team, if you are offering a fixed price contract to someone, don’t get roped into telling your client how many nuts and bolts you have allowed for. A fixed price contract is YOUR RISK, not your clients. If you are willing to offer a number to complete the job as described, that number isn’t a negotiation. The only thing you should negotiate on if the price has come in higher than the client can handle, is a reduction in the description of works, not a reduction in your price.
Charge up is the client’s risk…… and they generally know less than you do about how the project is going to work. To avoid bill shock and a breakdown in relationship, make sure you use a contract and describe what’s in and what’s out in detail.