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One of the most frequent causes of disputes in cost-plus contracts is when the costs of doing the work exceed the client’s initial expectations. Sometimes it is the builder’s initial ‘guesstimate’ on costs that set a client’s expectation. Although cost-plus contracts must contain a warning that the contract price is not known, a poorly calculated estimate may expose the builder to liability under trade practices legislation as it may be considered misleading and deceptive.
Often your client will insist that you provide them with an estimate so they have an idea on how much the project will cost. If you do provide an estimate, ensure that:
Where the client has requested an estimate it may be better to provide a range of prices – e.g. the estimated cost of carrying out the work is between $250,000 and $285,000. Err on the side of caution and overestimate the final price when the price can not be accurately estimated.
Although the contract price is not known, before you sign a cost-plus contract you must ensure that your contract contains a sufficient description of the work you are being contracted to do.
Plans and specifications may form part of the contract. If the scope of works is varied at any stage of the job you must get a signed variation. The variation must be in writing and signed by both the builder and the client before any of the variation work is commenced. You should also give your client a warning that the price will increase in accordance with the contract conditions.
Always add a note on your variation or estimate form stating ‘Note, this is a change to the original agreed scope of works and the owner agrees to pay the increase in the price in accordance with the contract’.
Under the cost-plus contract you have the option of either creating your own progress stages or using the standard progress stages as set out in the contract. If you decide not to create your own progress stages then the standard progress stage is:
(a) for the first progress stage – the Friday after the first full two-week period after commencement
(b) for all other progress stages – every second Friday after the previous progress claim.
Ensure progress claims are made on time in accordance with the contract no matter how small the claimed amount and always give the customer a statement with copies of the invoices/receipts being claimed whether or not they have been requested.
If you are not paid, then stop the work immediately in accordance with the contract, no matter what the circumstances. Seek advice from an HIA Workplace Advisor when structuring default and suspension notices.
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