The two most common construction contract types you will have to choose between are fixed-price vs charge-up. At Tuatara Structures, we only work with fixed-price contracts, though some companies may offer you a choice. It is essential to weigh up the pros and cons of each in making your final decision. Below we have listed some benefits and disadvantages of each to help shed some light on the differences.
A fixed-price contract contains an exhaustive list of all components covered by the proposed price. This detail means that you are precisely aware of three things from the get-go. These are; what the contract covers, what it doesn’t, and exactly how much it will cost you.
- Guaranteed pricing is the number one benefit to a fixed-price vs charge-up contract. A fixed-price contract means no need to worry about receiving a final bill far above your initial estimate.
- Another benefit arises if there are increases in the price of materials. With a fixed-price contract, the contractor has to absorb these costs; they cannot pass the costs on to you. This saving also applies to labour costs. And these costs rise quickly with the extension of a project completion date.
- Finally, a fixed-price contract is helpful for financing and project approvals. It is beneficial to present a fixed sum request to a bank and provides certainty for their servicing calculations. Equally, a fixed-price can aid in securing board approval, or similar, for a company project.
- Because the contractor is estimating costs; the pricing is likely to be higher for a fixed-price vs charge-up contract. The price will incorporate a contingency amount to cover unforeseen expenses or delays during the build process. If the build goes ahead smoothly with no changes, then the additional profit will be kept by the contractor.
- Most fixed-price contracts will have some caveats or exclusions for elements of the build that are complete unknowns. The contract will clearly state any exclusions, and you will need to account for these separately.
- One last point to consider is that once works have begun, variations to the agreed contract can end up costly. This expense is because the contractor allocated a set amount to each element and stage of the build. Therefore, making changes late in the project will often incur additional administration, materials, labour, etc. the cost of which they will then need to pass on to you.
A charge-up contract gives you an estimated cost for your build. It is likely based off an average square-metre price, with any unique features or specific design elements taken into account as best they can.
- You only get charged for what you use. You won’t get stuck paying for labour that wasn’t required if the project finishes early. And if material costs decrease, then you will pay the lower price.
- There is more room to be flexible, even once works have begun. There can be more leeway around making final choices of components of the build before starting. This flexibility means that if you want to change elements later, then it won’t be such a significant job for the contractor.
- There is no guarantee that your project will run to budget. If unexpected delays or issues arise through the build, then you will pay for the related costs. Labour costs can jump up surprisingly quickly due to a delay. Equipment hire costs will also increase if this is to happen.
- You will also be hit with higher costs if the material pricing increases. Because you pay for everything at cost, price hikes will hit you directly in the pocket.
- As with a fixed-price contract, there will still be the potential for unknown works and subsequent costs to appear. There will also be listed exclusions, for which you will need to decide how to proceed or arrange additional finance to cover.
There is no right or wrong answer when it comes to a fixed-price vs charge-up contract. Only you will be able to make that decision once you’ve considered all factors.
At Tuatara Structures, we solely offer fixed-price contracts. Because of this, we work hard to ensure that we price our proposals fairly and accurately. We continually update our modelling system with current material and labour costs. We also learn from each build on how to improve efficiency. This constant tweaking and improvement ensure our clients get the best value for their builds.
Best of all, we provide complimentary, obligation-free pricing investment proposals for every job. So, if you’re looking for a price for your next project, get in touch with one of our team today.