Clients will usually make initial contact telling us about their project and asking about our potential availability. The next question is how much will it cost? Can you give me a quote?
Two basic ways of structuring a project contract with a builder (or any trade for that matter) are quotes and charge up jobs.
A quote or fixed price project is a contract between the client and contractor where the scope of work is outlined before the project starts and a fixed price is given.
Generally the builder will be sent all relevant plans and information from the client, visit the site, assess what work is required and provide a quote to complete the work required. Plans are sent out to subcontractors, material suppliers etc. to get their individual pricing.
Lots of work go into producing quotes for clients. Quotes can take weeks to complete. A builder may want to see some serious commitment from the client in order to invest the time and money required in putting together a quote.
The quote will often come with a scope of works outlining in reasonable detail the work to be carried out and allowances made. The scope of works will also list any conditions required as part of the quote and work that hasn’t been allowed for.
Quotes can give budgeting confidence
Quotes gives a client the ability to confidently budget for their project as there is an agreed price for an agreed amount of work.
A building company is predicting how much a project will cost and how long it will take. The prediction will often be an educated one however will rarely be exactly right.
From a builders perpective – where there is not clear instruction on what work is required when quoting a job they will lean towards the worst case scenario. This means allowing extra time and materials to try and safeguard against the unknown.
Take time to plan your project properly
The more clarity and owner can offer a builder around scope of work, the more accurate the quote will be. The best case scenario is where both the client and builder win. The owner gets a quality job at a fair price and the builder is able to make money and produce something they are proud of.
Variations to quoted jobs
Sometimes during a construction project there are circumstances that a builder pricing a job could not reasonably foresee. For example a builder pulls the existing weatherboards off to find the framing timber in an area was rotten even though there was no obvious signs of rot from the outside. When a situation like this occurs a variation request is required.
A variation request is a formal change to the original quoted price which outlines any additional costs to complete the unforeseen work. Variation requests must be agreed between the client and the builder and signed by both parties to allow the work to proceed.
Billing a quoted job
Bigger jobs will often be billed in progress payments. These payments could be a % of the total job cost based on an approximation of the work completed. Milestone payments are another popular way of billing quoted jobs.
Charge up work
Charge up work is the term used when a project is taken on and the client is billed for the labour and materials actually used on the job. Before the project commences the client and contractor will have agreed on rates such as:
- labour rate – usually $/hour
- margin on materials
- margin on subcontractors
- overhead or admin charge
Larger jobs commencing on a charge up basis require a contract of service between the client and builder.
Charge up contracts provides a fair price for the work undertaken provided the contractor is efficient and reliable. Often clients can feel uneasy accepting a contractor on a charge up basis as they dont have the security of a fixed price (like in a quoted job). This is especially the case if they have not worked with the contractor before. Getting a detailed estimation of the projects cost before hand can mitigate some of this fear.
When time is of the essence such as an emergency work, there may not be time to put together a quote so a job will have to proceed on a charge up basis. Before any job like this takes place ensure you have agreed on rates first.
Charge up work is most beneficial when there are many unknowns in a project. As previously mentioned when there are unknowns the general rule is to allow for extra time and materials to cover the worst case scenario. This could be detrimental to the client if the job is quoted as they may be paying more for these unknowns.
Another scenario where charge up jobs could be a better option is if the owners want to do some of the work themselves. There would be little benefit helping the builders or taking on some of the work if the job had already been quoted.
Billing a charge up job
Charge up jobs are usually billed for the work completed at the time of invoicing. This method means you should only be paying for work completed to date.
For jobs likely to cost more then $30k (incl gst) it is a legal requirement to have a building contract in place. For more information on building contracts check out https://www.building.govt.nz/contracts-for-your-building-project/
Quotes vs Charge up
Quotes and charge up are just two main ways a small residential builder will structure a building contract. There are pros and cons for both having a job quoted or commencing on a charge up basis. We have only just touched on some of the different ways to structure a building contract. Your builder should be able to help guide you through this process.
Clients are always keen to get started straight away. They have had this project idea in their head for months or years and it is so close to becoming a reality! Time spent structuring the contract with you builder properly at this stage will help the whole project run smoothly.
Of course you can structure your project however you like. You may choose to use a combination of quoted and charge up work. Or neither of the two. Set up the project to serve your best interests.
Email us if you have any questions on quotes or charge up work