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FIXED PRICE BUILDING CONTRACTS - WHAT'S THE CATCH? · The Real Estate Show

• 0:00
  Speaker 1: Well, Cam, fixed price building contracts. That sounds you know,
• 0:04
  Speaker 1: pretty good on the surface, right does it? Does it?
• 0:06
  Speaker 2: Though? Well?
• 0:07
  Speaker 1: I think, and we're going to learn about this in
• 0:09
  Speaker 1: just a sec. Then there's a bit to dig down on,
• 0:11
  Speaker 1: a bit to investigate here, because I think there's a
• 0:13
  Speaker 1: few little hidden bits and pieces that might catch homeowners.
• 0:16
  Speaker 3: Out anytime I hear fixed price anything, Yes, warning signs exactly.
• 0:23
  Speaker 1: Adam Hoble, principal building designer, Adam Hoble Design and author
• 0:27
  Speaker 1: of the book Nail It is going to tell us
• 0:30
  Speaker 1: all about that, Adam, Good morning.
• 0:32
  Speaker 2: Good morning guys.
• 0:32
  Speaker 4: How are you good?
• 0:33
  Speaker 2: Now?
• 0:34
  Speaker 1: Look, we do hear it often fixed price contract? Is
• 0:39
  Speaker 1: that reassuring or not?
• 0:42
  Speaker 4: Well? Very good question, very good question.
• 0:46
  Speaker 2: The idea of a fixed price contract sounds great, no
• 0:49
  Speaker 2: doubt about that, and that's why homeowners love the idea
• 0:52
  Speaker 2: of them. But the understands there is no, they're not
• 0:56
  Speaker 2: They're not really as assuring or reassuring it they might sound.
• 1:01
  Speaker 2: Over ninety percent of residential building projects in Australia use
• 1:06
  Speaker 2: fixed price contracts, and almost none of them are truly fixed.
• 1:10
  Speaker 2: There are clauses written into these contracts. They're perfectly legal,
• 1:14
  Speaker 2: perfectly standard that mean the final cost can end up
• 1:18
  Speaker 2: a lot more than what you signed up for.
• 1:20
  Speaker 3: So what are some of the things that are hiding
• 1:22
  Speaker 3: inside one of these things? What should we be looking for?
• 1:27
  Speaker 2: Look, there's a couple of very simple little terms that
• 1:32
  Speaker 2: are are really important to understand on cost items and
• 1:37
  Speaker 2: provisional sums. You'll see them written as PC and PS
• 1:42
  Speaker 2: in the contract, and both fall into the broader terminology
• 1:45
  Speaker 2: of allowances. A PC item is basically a placeholder for
• 1:51
  Speaker 2: something in the build that you haven't chosen yet, things
• 1:54
  Speaker 2: like your taps, toilet appliances.
• 1:56
  Speaker 4: Flow tiles.
• 1:58
  Speaker 2: So the builder puts an allowance in the contract, and
• 2:00
  Speaker 2: if you end up choosing something that costs more than
• 2:02
  Speaker 2: the allowance, which is very easy to do when you're
• 2:05
  Speaker 2: standing in the bathroom showroom, that difference gets added to
• 2:09
  Speaker 2: your bill. An end of a contract, the builder can
• 2:12
  Speaker 2: also charge a margin of up to twenty percent on
• 2:14
  Speaker 2: top of that difference.
• 2:15
  Speaker 1: And look, I imagine correct me if I'm wrong, Adam, but
• 2:17
  Speaker 1: I imagine that those that allowance that they allow for,
• 2:21
  Speaker 1: you know, for taps and all those sorts of things,
• 2:23
  Speaker 1: would would that more often than not be for kind
• 2:26
  Speaker 1: of the real basic you know, standard kind of the risk.
• 2:30
  Speaker 4: Yeah, so this is this is where I guess we really.
• 2:32
  Speaker 2: Encourage our currents to be informed and kind of guide
• 2:37
  Speaker 2: that process to actually understand what is the reasonable cost
• 2:40
  Speaker 2: of a toilet? You know, if a builders putting in
• 2:43
  Speaker 2: an allowance of three hundred dollars for a toilet, then
• 2:45
  Speaker 2: he's kind of allowing a really basic entry level toilet.
• 2:49
  Speaker 2: So everythings you need to be aware of.
• 2:51
  Speaker 1: Okay, So when I'm after my brass lovely you know
• 2:54
  Speaker 1: tap that I want to get, I should just be
• 2:57
  Speaker 1: wary to put some extra cash aside.
• 2:59
  Speaker 4: Huh exactly?
• 3:00
  Speaker 2: So are there are things that we can can control
• 3:02
  Speaker 2: and guide to make sure that you know there are
• 3:04
  Speaker 2: no surprises lurking? Yeah?
• 3:06
  Speaker 3: I mean it sort of sounds reasonable though, doesn't it
• 3:09
  Speaker 3: Like a builder will put in the X amount, but
• 3:11
  Speaker 3: if you want more then you just have to.
• 3:14
  Speaker 1: Know about special defensey stuff.
• 3:16
  Speaker 2: Yeah, yeah, it is, it's reasonable a builder can't.
• 3:20
  Speaker 4: I mean. The other other term that we need to
• 3:24
  Speaker 4: be careful of is provisional some.
• 3:26
  Speaker 2: So we've got this idea of a PC and a
• 3:28
  Speaker 2: PS prime cost and provisional sum are provisional some is
• 3:31
  Speaker 2: the items that there's labor and material involved in so
• 3:37
  Speaker 2: things like kitchen joinery, a builder can't know for sure
• 3:41
  Speaker 2: how much you're going to spend on your kitchen because
• 3:43
  Speaker 2: it hasn't yet been designed. So it's perfectly reasonable to
• 3:46
  Speaker 2: use provisional sums, but they need to be done very
• 3:49
  Speaker 2: transparently and very clearly, and the client really needs to
• 3:52
  Speaker 2: make sure that they have an understanding of kind of what.
• 3:55
  Speaker 4: That money's like with to buy.
• 3:56
  Speaker 1: Yeah, absolutely, Adam, Just quickly, how do we sort of
• 3:59
  Speaker 1: avoid falling into these traps?
• 4:02
  Speaker 4: Ye, Two important things that you've got to get right
• 4:06
  Speaker 4: first before we.
• 4:06
  Speaker 2: Go anywhere near builder or builders. You've got to make
• 4:10
  Speaker 2: sure you've got your design and documentation sort of properly.
• 4:12
  Speaker 2: The more detail in your drawings and specifications, the lesser
• 4:15
  Speaker 2: in there is for vagueness and educated guesses in the quote.
• 4:20
  Speaker 2: As we said, the builders can only really price what
• 4:23
  Speaker 2: they are given, so if it's not in the documentation,
• 4:26
  Speaker 2: it's going to get missed or it becomes a guess.
• 4:29
  Speaker 2: And second, when you do get quotes, look really carefully
• 4:33
  Speaker 2: at how many provisional sums and prime costs are in
• 4:36
  Speaker 2: the quote and ask the builder to explain each one.
• 4:38
  Speaker 2: So you're looking for calculated estimates, not covered wild random guesses.
• 4:43
  Speaker 2: A well prepared quote should have as few provisional sums
• 4:47
  Speaker 2: as possible, especially for things that should reasonably be expected
• 4:50
  Speaker 2: to be quoted as fixed costs. And that's a big
• 4:53
  Speaker 2: part of what we do, making sure our clients are
• 4:55
  Speaker 2: really well prepared to get quotes that are thorough and
• 4:58
  Speaker 2: accurate and not exposed to those.
• 4:59
  Speaker 3: Blow prime costs provisional sums renee. When you see those words.
• 5:04
  Speaker 1: Ask the questions.
• 5:05
  Speaker 3: Ask the questions exactly.
• 5:08
  Speaker 1: That's been so interesting and informative. Thank you so much
• 5:11
  Speaker 1: for your time.
• 5:12
  Speaker 4: You're welcome, guys, have great weekend.
• 5:13
  Speaker 1: Sheers Adam Hobill, Principal building Designer, Adam Hobile Design. That's
• 5:17
  Speaker 1: really interesting, isn't it.
• 5:18
  Speaker 3: Cam Sure is