Building Contracts Explained – Fixed Price Agreements And Expectations

If you’re building a new home under a fixed price contract, you’ve probably been impressed with the style, finishes and fixtures of a show home and think that this is exactly what you’ll get on completion. Building contracts often don’t show detail in relation to the quality and finish you will receive. This can be a problem if you are expecting a show home quality finish.

Fixed price contracts

The price of building your home usually appears as a fixed cost. However, most contracts will make provision for price “adjustments” and although some works are listed in the contract, not all of them are included in the contract price.

Adjustments in the price can include aspects like extra work, any increase in prices outlined in the contract and associated costs. These costs fall back onto you. If you are building and have a tight budget, this can become a real problem. Unforeseen costs can wreak havoc on budgets and cause undue stress during your build.

Most contracts include all the construction aspects, materials and fittings for the build that are assumed to be part of the build price. A lot of the work undertaken by third parties, such as retaining and geotechnical investigations, are not included in the purchase price. Some figures quoted for certain works can also be subject to variation.

Prime costs and provisional sums

A prime cost is the amount of money allocated for something that is to be bought during the build. This is not usually an exact figure as prices could change by the end of the build. The allocation is usually a fair representation of the cost of the item, but this amount can fluctuate to much higher amounts which has potential to blow out your budget.

A provisional sum is a similar idea to the prime cost but it is for certain aspects of the building works. A builder will give you an estimate of how much it will cost to complete a part of the works because it is almost impossible to give you an exact figure. These amounts are also subject to fluctuation as the builder may come across issues when completing certain aspects.

Ceiling height

In most contracts, ceiling height is not something that is specified. Most show homes have ceiling to floor heights of 3 metres to ensure the feeling of space. If there is nothing in the contract confirming this height, the builder can lower this height at their discretion and this will change the look and feel of the room and the building.

Master Builders

In New Zealand, many builders are part of the Registered Master Builders Association. Being a part of the association enables the builder to transfer you a Master Build Guarantee of 10 years upon completion of the work. Check to see whether your builder is a Master Builder. If they’re not, and there is a Master Build Guarantee included in your contract, this should raise alarm bells.

For help with contracts for new builds or general property advice contact our property team.

Written by Samantha Mangino
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