There are two types of pricing models homeowners can make use of in residential building agreements: Fixed-Priced Contracts & Cost-Plus Contracts.
Fixed-Price Contracts with a building contractor are popular among Australian homeowners and for good reason. This pricing strategy allows you and your contractor to agree upon a fixed monetary amount for the entire home renovation that is conditional to stipulations agreed and outlined in the Contract. The fixed amount factors in all professional costs, subcontracting costs and materials to be used in the renovation.
Cost-Plus contracts with a building contractor are generally less desirable. This pricing strategy allows you and your contractor to negotiate an overall margin that the contractor will make which is usually a percentage of the overall building cost. Supervision costs usually fall outside of this margin and are presented to a client as a separate fee.
While in a Cost-Plus Contract the homeowners generally get more of say as to which quotes they proceed with, this also means that ultimately the homeowners are responsible for ensuring the works are correct and they are responsible for the costs to rectify if anything goes wrong. If any reworks are required, this creates a grey area as to who is responsible for paying for those reworks – the client or the builder?
Why a fixed-price model is cost-effective.
In using the Fixed-Price Contract, you will receive an estimate on the cost of your build based on the cost of site works and other construction materials.
The Builder you choose should offer the best job at the most competitive price. This may not necessarily be the lowest price bid, but the best price for the best service and quality of workmanship. In comparing a Builders contract, you need to factor in the quality of materials to be used,
If there is an omission or fault with some aspect of meeting the Contract’s conditions, (for example, a sliding door was installed instead of a bi-fold door) and rectification bears extra costs, this financial responsibility falls on the shoulder of the Builder, but in a Cost-Plus Contract, that cost can be passed on to you. This can create arguments
There are many advantages to fixed-priced contracts: homeowners know what the cost of the renovations projects will be upfront and can budget and plan accordingly, the builder is responsible for the risk of cost blowouts. Financial institutions also generally favour this pricing model as there is more certainty as to the final cost of the renovation.
With more than 40 years of invaluable experience in the home construction and renovation industry, Supa Group Constructions offer competitive fixed-priced contracts that are completed on time and to satisfaction. Schedule a consultation today.