Scott Cam on How to Avoid Contract Proposal Problems

Scotty Cam

AVOIDING CONTRACT PROPOSAL PROBLEMS

Whatever you do, don’t believe anyone who treats your building contract as simply “standard paperwork.” Fact is, it’s NOT.

Many unsuspecting people have found themselves at the sticky end of a contract with repercussions they weren’t expecting, simply because they weren’t 100% clear on the contents before signing.

The areas that can cause the most trouble are:

Inclusions and exclusions

Make sure any plan, specification and design change you want is listed in the contract. Every contract will have an exclusion clause, meaning that only those things written into the contract need be adhered to.

If you were given a special deal at the sales stage to secure your business, now’s the time to make sure this promise is written into the contract. If it’s not in writing, and in your contract – you may miss out.

“Prime Cost”

Prime cost is a set budget assigned to items in your building project. Taps are a great example. If you don’t specify the exact make and model of taps you want, the builder will likely use standard low-cost taps and charge you a mark up.

In the contract the builder will state the quantity and cost – along with any margin they add on. About 20% margin is standard. What can then happen is, if you have a specific kind of tap in mind, but haven’t stated the details in your contract – the build will be half-way along before you realise the contract’s prime cost budget won’t cover the price of the taps you want.

At this point finding out you have to pay extra, is no fun at all. Avoid prime cost issues by stating in your contract BEFORE signing, the exact make, model and colour details of each item you want in your house.

“Provisional Sum”

Provisional sums are estimates where the builder cannot give an exact figure for the work required despite making reasonable enquiries into what it’ll actually cost.

Take excavation for example. Even with a soil test, it may be difficult to know exactly what lies underground (and near impossible to determine the cost of the work required.) The difference could add up to thousands of dollars.

Truthfully, some things at the project start simply can’t be known. This is why it pays to probe your builder about potential risks, costs and consequences surrounding any provisional sums in your contract.

Variations and cost

When you vary anything in the floorplan or design, it often adds work and material costs to the original scope
and quoted price. To save on costs, it’s important to make any changes before you sign the contract. Whatever is reflected on the drawings and inclusion-schedule at the time of signing the contract will then be included in the project scope.

Now, if you’ve already signed your contract and the project has started but an electrician increases his labour cost, this increase cannot be charged to you – unless the work he’s doing falls under a ‘provisional sum’ clause. The trick here is to negotiate with your builder to limit how many provisional sums there are in the contract. Where possible, have these included in the quote as part of the fixed price instead.

Sign and counter-sign for changes

In your contract, make sure every field is completed or a line drawn through it if something doesn’t apply. For everything you cross out, edit or change, both you and the builder need to initial the amendment for it to be legally binding.

Avoid the temptation to sign when there’s a clause you don’t fully understand and are uncertain about. The purpose of the contract is to protect you both in event of a dispute. Do yourself a GIANT favour and pay attention to the details at the start.

Project timeline and payments

You and your builder should end up with a mutually agreed timeline, although be sure to allow for bad weather
conditions and delays that just can’t be avoided.

But whatever you do, don’t sign a contract without a timeline both you and your builder are clear on. Payments when building should happen periodically as the build reaches different stages of progress. Ask your builder what process they follow for you to be able to inspect the work at each of these stages, to confirm quality workmanship.

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