What's the story with builders' quotes?
Congratulations – you’ve decided to renovate! If it’s a decent-size job you’ll have plans drawn up, your DA approved and you’ll probably be getting a couple of builders quotes. Ideally, these will be builders that friends or colleagues or maybe your designer has recommended. As you’re navigating your way through this strange new world you’ll be coming across lots of new words and phrases that you may not of used before. Two that you’ll definitely be hearing are “fixed price” and “cost plus” and they’re to do with how the builder charges for his work.
So, what’s the difference?
If you are doing a new build and have a comprehensive scope of works (ie you’ve put plenty of detail in there and there’s very little room for (mis)interpretation), you might be considering asking for a fixed-price quote. This means that the builder looks at your plans, puts a cost against everything he can see there and gives you a quote for all the work that’s outlined in your scope of works. The price he gives you includes any profit that he will make on the job. In a perfect world, this means you know exactly how much your build is going to cost and that there will be no surprises.
In the real world, that may not actually be the case. A fixed price quote is only as good as your documentation and scope of works. Sometimes, lines on a drawing just don’t give enough detail for the builder’s quote and your vision to match up. Once the quote has been accepted by you, any changes to that are considered a variation. Some unscrupulous builders will go low on a quote to win a job and then try to make up the money by charging for lots of variations. This is not a pleasant experience for the home owner and before you accept a quote, you need to go over it with a fine tooth comb to make sure it aligns with your expectations. For example the builder might have allowed for a standard 20mm engineered stone benchtop in the kitchen, unless you tell him upfront that you want a 40mm benchtop, that will be charged as a variation.
Many builders prefer working on a cost-plus basis. This means that they look at your plans and scope of works and give their best estimate of what the work will cost. This estimate includes any profit they make from the job. The difference really comes in when it’s time to invoice as, rather than charging you a set price, they will charge for the actual time it took plus the materials that were used. This final number might be higher than their original estimate because they came across unforeseen issues or it could be lower than they thought because the carpenters were able to do it quickly. Either way, you’ll see exactly how long it took and what it cost.
Of course, there’s always room for abusing the system and some unscrupulous builders may drag their heels in order to charge more time. Hopefully you’ve engaged a builder who’s more focussed on doing a good job, in a timely fashion, for a fair price.
Both options are totally legit and the option you choose depends on how final your plans and drawings are as well as the builder you decide to use – some simply won’t do fixed price jobs because if they are unforeseen problems, the builder will end up paying for them and not make any profit on the job. Which is not a great scenario for a business person, as I’m sure you can understand.
Was your building job fixed price or cost plus? Which option would you prefer if you were doing a renovation?