When you’re planning a custom home or major renovation, the type of building contract you enter into is an important part of the process.

Two terms you may come across are fixed price and cost plus.

Both are used within residential construction, but they approach the cost of a project differently.

At Manning Homes, we choose to work exclusively with fixed-price HIA contracts because they align with the way we plan, price and deliver our projects.

What Is a Fixed Price Contract?

A fixed-price contract establishes an agreed contract price before construction begins, based on the plans, specifications, inclusions and other contract documents developed for the project.

That doesn’t mean the contract price can never change.

Changes requested during construction, variations, adjustments to Prime Cost or Provisional Sum items and other circumstances provided for within the contract can affect the final amount.

But the starting point is a clearly documented scope and an agreed contract price.

For us, getting to that point requires doing a significant amount of work before the building contract is signed.

Why We Don’t Offer Cost-Plus Contracts

Under a cost-plus contract, the final construction price isn’t fixed when the contract is entered into.

Instead, the client pays the actual cost of carrying out the building work, along with the builder’s agreed fee or margin.

There are projects and circumstances where cost-plus contracts can be appropriate, particularly where the nature of the work makes it difficult to accurately determine the cost before construction begins.

However, it’s not the contract model we’ve chosen for Manning Homes.

We prefer to develop the project in detail before construction so that we can establish the scope, obtain pricing and enter into a fixed-price contract based on what is known at that point.

A Fixed Price Starts With Good Planning

For us, the fixed-price contract is really the end result of the work completed during pre-construction.

Before we reach contract, the project progresses through our Concept and Preliminary stages.

This is where we work through the design, site information, engineering, approvals, selections, specifications and other details relevant to the project.

As more of those decisions are made and unknowns are resolved, we have better information to price from.

It takes more work upfront, but it means we’re not trying to establish a construction price while major parts of the project are still undecided.

What About Prime Cost and Provisional Sum Allowances?

A fixed-price contract can still contain Prime Cost (PC) and Provisional Sum (PS) allowances.

A Prime Cost item is generally used for an item that hasn’t been finally selected or priced when the contract is entered into, while a Provisional Sum can be used for work where the builder can’t determine a definite cost at that stage.

These allowances may later be adjusted according to the actual cost.

The aim isn’t necessarily to eliminate every allowance from a contract. It’s to make sure the allowances being used are appropriate, clearly identified and based on the information available at the time.

Fixed Price Doesn’t Mean No Flexibility

Another misconception is that signing a fixed-price contract means you can’t make changes.

Changes can still happen during construction.

Where a change affects the agreed scope of works, it may need to be documented and priced as a variation in accordance with the building contract.

Having that process in place means both the client and builder can understand what is changing and how it affects the contract before the relevant work proceeds.

Why Fixed Price Works for Manning Homes

Ultimately, we’ve chosen fixed-price contracts because they suit the way we want to run our projects.

We’d rather spend the time before construction developing the design, working through selections and documentation, obtaining pricing and clearly defining the scope.

It also ties into the reason we place so much importance on our Concept and Preliminary stages.

A fixed price isn’t something we can confidently arrive at after one conversation or from an early set of plans. It’s the result of progressively developing the project until we have enough information to understand what we’re being asked to build and price it accordingly.

Planning a custom home, major renovation or knockdown rebuild in Forster-Tuncurry or the surrounding area? Get in touch with our team to learn more about our process and how we take a project from the early stages through to a fixed-price building contract.