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A cost-plus contract must be headed ‘Cost-plus Contract’ and must contain a statement in which the parties acknowledge that it is a cost-plus contract and that the Home Building Contracts Act 1991 (‘the Act’) does not apply to it (except in relation to the requirement for you to take out home indemnity insurance).
A frequent cause of disputes in cost-plus contracts occurs when the costs of doing the work exceed the owner’s initial expectations. A poorly calculated estimate may expose you to liability as it may be considered misleading and deceptive.
In the event you provide your client with an estimated contract price, ensure that:
Ensure that your contract contains a sufficient description of the works 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 execute a written variation. You should also give your client a warning that the price will increase in accordance with the contract conditions.
Under the HIA cost-plus contract, there is no provision for acceptance of a deposit prior to commencement of the works. However, you do have the option of electing between periodic progress claims or can instead choose to issue progress claims when a minimum amount in costs has been incurred.
Payments are based on the actual cost of the building works and the builder’s fee which is either a set fee for the whole job or an agreed percentage of the cost of the building works.
HIA’s cost-plus contract states that the cost of the works includes:
The builder’s fee is the money that you are charging the owner on top of the cost of the building works. Your own time on the job is a direct cost and should be charged as a cost of the works, and not come out of the builder’s fee.
It is also important to ensure that your progress claims are claimed in accordance with the contract. When making a claim it is recommended that you provide your client with a statement together with copies of the invoices/receipts being claimed whether or not they have been requested. In the event of non-payment, there are steps that can be taken under the contract, such as suspending the works.
Calculation of progress payments can become complex when applying GST to the cost of the building works and the builder’s fee. Disputes can arise if there are concerns of overcharging GST and it is important to ensure that GST is not undercharged either.
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