Fixed Price or Cost Plus Build Contract (1st time developer)

[albanga]

I am sure this question has been asked 1000 times on this forum but I am just keen to hear peoples latest thoughts on this. I have done some research and strong arguments can be made for both.

I really like the idea of cost plus but the research I have done does seem to be that the cost plus is better suited to experienced people. As this is my first development would it be a big risk as really I have no knowledge about construction.

 

[HD_ACE]

Will you need finance for the build?
If so, depending on amount and lvr the bank will probably require a fixed price contract. Something to look into

 

[bashworth]

Cost plus is only for the experienced or those prepared to pay an experienced project manager. For more detailed reasons see my blog at this link http://www.anewhouse.com.au/2014/06/cost-plus-contracts-avoid/

 

[westminster]

Fixed price all the way if you need finance.
Cost plus is quite common in the renovation area where things are more unknown to estimate but it can be easily used to con you out of a lot of money.
For a first time developer I'd go fixed price

 

[albanga]

Hi All,

Thanks for the quick and great replies

It definitely appears from the more I research that a fix price contract is going to be the best option (perhaps my only option with finance).

I did just have a couple of questions (I guess concerns) regarding fixed price contracts.

Can you as the developer get a return on the fixed price? For example let's say I sign a fixed price contract for $300,000 but along the way I am able to source cheaper materials and do a few of my own trades (for example the contract had painting but then i decided to do it). Would the builder be required to pay back to me the savings? Or because I signed a "fixed" price then he would keep all the savings? I know things can easily be added to the construction and I be charged (known as variations) but what about taking things away or changing materials to cheaper options to save money?

Will builders generally hand you every receipt on a fixed price contract for you to review? My concern is with a fixed price contract that you may not get exactly what you signed for and your none the wiser because you are not given the receipts. You just know the contract says X amount for something and that is it? I know for visible items you will be able to tell but what about structural, electrical, plumbing.etc that you cannot see?

I guess a better question may be, If i sign into a fixed price contract what should I be looking for before signing (I know as much detail as possible will be a great start), during construction (limit variations as much as possible?) and once the construction has been finished (maintenance?)

 

[Scott No Mates]

Albanga, asking for the invoice cost sounds good in theory but just won't happen in a fixed price contract. The builder has priced the job, assessed the risk, preliminaries and then put on the margins. If they are then able to negotiate better pricing (or worse for omissions) it's the builder's gain not yours.

With cost plus, the builder provides all invoices then you pay the margins on top of cost. This may be suitable for a portion of the job which is undocumented or unknown eg rock excavation. Otherwise items can be covered in provisional sums eg supply of sanitaryware, tiles, artwork or kitchen equipment.

Cost plus is a high risk strategy for a newbie.