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When a Fixed Price Contract Won’t Work

When Builders Shy Away From Fixed Prices

To be fair, a fixed price contract is always possible, but sometimes when you are negotiating with a client and the job is tricky builders shy away from providing a fixed price contract which is understandable, however there are risks involved either way.

If you are going to provide a fixed price contract for a really difficult job then your price is likely to be high because of the unknowns, or at least it should be! If you are dealing with a client they may be scared off by that, either that or have a preconceived idea that it should be cheaper than your fixed price and prefer a charge up method.

The problems I see that occur, are when a client asks around a few builders for a price indication and picks the cheapest guy and then presses the go button. Frequently they aren’t completely aware that they can’t hold their builder to that indication cost and base their finances around the builder’s guess.

Dealing With The Fall Out

Recently I have had to deal with the fallout of this exact situation.

The home owner had a complex project that involved using an existing structure that was being moved and added on to and had obtained three price indications for the labour component of the job. In his wisdom, he picked the contractor whose price was half of the other two and hit the go button. 250% later, the home owner is in strife with their finance company, and the house is not finished. What I have to do now, is provide a back cost of the finances to the home owner to provide to their lenders, and a cost to complete. No mean feat with no detailed timesheets! It’s like untangling spaghetti junction!

So how do we manage a process like this moving forward? How could we have made sure the stress of this situation never occurred in the first place?

A Few Things We’ve Learnt

Number 1 – The home owner should have had some independent costing advice at the front end of their project. Yeah, the QS would have been a bit glass half empty trying to cover off all the potential contingencies, but at least the home owner would have known how costly it could have been and worked backwards from there to get to a budget they could work with.

Number 2 – The home owner should have had a QS check over the price indications from the builders who looked at it, questions could have been asked at the time to clarify what was and wasn’t included.

Number 3 – To protect both the home owner and the builders, a QS could have helped get the agreement signed up in the beginning – ideally as a charge up contract – but with provisions as to how the contract will run. In this situation I would have suggested specifying the level of detail required on the time sheets, and how often they should be submitted. Also specifying the frequency of invoicing, and how other items such as attendance and fixings etc should be dealt with and the hourly rates for the team members. An hour or two a month of the QS running their eye over the info would have highlighted any issues quickly.

Just doing these things would have meant that the situation that did occur would have been far less likely, truly a case of the ambulance at the top of the hill rather than Vic rushing to the rescue sirens blazing at the bottom of the cliff!

So, the message is…. Encourage your clients to work with a QS, when a project isn’t completely straightforward and has the potential to turn into a mess the QS can help to keep things tracking along and everyone on the same page.

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