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For a more detailed guide and further information, please see our information sheet Guidelines when using HIA Cost Plus contracts.
A Cost Plus contract is used when a fixed price for the works cannot be given at the time of entering into the contract. For example, if you are completing a renovation, it may not be possible to provided a fixed quote until you commence the works due to the cost of materials and labour or any other additional works that may be required.
The only element that is not agreed or fixed at the time of signing in the price. This means that you must have a clear scope of works and plans and specifications that sets out the building works to be carried out. If changes are made along the way, you must follow the variation process set out in the contract.
That is up to you.
Whilst the contract does not require the builder to provide an estimate, an owner may still insist that the builder provide an estimate so that the owner has an idea of how much the project will cost.
Even if you do choose to provide an estimate, the HIA Cost Plus contract contains a warning to the homeowner that the contract price is not known and any estimate provided is an estimate only and not a representation of the contract price.
To avoid any disputes with homeowners, builders should:
The contract sets out that the price of the building works is an amount equal to:
(a) the cost of the building works; plus
(b) the builder’s fee; plus
(c) any GST payable in connection with the above amounts.
The cost of the building works includes those costs directly related to the work, including but not limited to:
The cost of the building works excludes any GST paid by the builder in respect of a taxable supply in which input tax credits are available to the builder. This is because you do not want to charge GST on a GST-inclusive amount. GST will be recoverable by the builder in accordance with clause 10 of the contract.
The builder’s fee is money that the builder charges the owner on top of the cost of the building works to cover indirect costs, overheads and profit.
The contract gives you the option to either make the builder’s fee a set amount for the whole job or you can charge a percentage of the cost of the building works. If you do not specify a percentage, the default percentage amount is 20%.
Your own time on the job is a direct cost and should be charged as a cost of the works, not as part of the builder’s fee.
The HIA Cost Plus contract provides the option of either creating your own progress stages or a time period for reaching progress stages, being:
(a) For the first progress stage - the Friday after the first full 2-week period after commencement of the works; and
(b) For all other stages - every second Friday after the previous stage.
Each progress claim needs to be accompanied by evidence of costs incurred up to the time of making a claim (such as invoices, receipts from suppliers and contractors and other documents that support or justify the amount being claimed).
If there is any change to the scope of the works (any changes to how things are done or any addition or omission to the work you will be doing) at any stage of the job, you should obtain a signed variation before continuing with the works.
Variations must be in writing and signed by both the owner and the builder before any of the variation work commences. Either the builder or the owner can request a variation. Where the owner requests a variation, the builder must reply within 5 days of the request (or as soon as reasonably practicable). The builder has the right to refuse a variation.
The price of the variation (if applicable) is due and payable at the next progress payment after the work is carried out unless a different time is agreed.
No matter the size of the job, a watertight building contract is critical to protect your business, and the current climate presents a great opportunity to go digital with your contracts.