If you’ve already had experience of the building process, you’ll already know it’s a jargon-heavy space, particularly when you take a glance through your contract.
If you’re about to engage a builder for the first time, this often unfamiliar language is something you’ll need to prepare for. I thought it would be useful to run through a few of these terms, and hopefully help to clarify the language and process. In doing so, I hope to ensure you are fully informed by the time you are ready to sign on the dotted line.
When I originally applied for my builder’s license, I had to learn building contracts word for word. I’ll share some of those learnings here, starting with seven of the most common and important terms.
Provisional Sum (PS)
What is a Provisional Sum?
A Provisional Sum (PS) is an allowance for labour costs only, or a combination of labour and materials included in a contract by the builder. It helps provide an idea of the cost of the project and each individual task, at a time when these things often can’t easily be priced accurately. A PS is mostly a consequence of guesswork relating to specific portions of a job, such as plumbing. They can be very useful in the very early stages of a project when many important decisions about the build are yet to be made.
Why is it important to know about PS’s?
Ok, this is the stage at which I probably need to offer a warning about the PS. It is an amount within the initial contract that can (and often does!) change. Including lots of PS items within a quote is a tactic used by builders to help them offer the lowest price and thus secure the job.
However, the actual invoice that arrives on completion of the work can end up being far higher than the amount quoted using PS’s, meaning the cost of your job could blow out way past what you had been expecting. The bad news here is that YOU will be the one expected to pay the extra amount. Therefore, the more PS’s found in your contract, the less risk and responsibility your builder holds for miscalculations or unexpected increases in price, and the more risk you take of ultimately having to foot the bill.
How to make Provisional Sum items your bitch
If you obtain a detailed fixed-price quote for your project as an alternative, there should be no need for any PS’s in your contract. A detailed fixed-price quote offers an exact price and thorough breakdown of precisely what your project will cost, so you’ll know what to expect to pay on completion. However, this is typically not a free service. Regardless, despite the costs involved the amount of detail and accuracy you’ll get from this type of quote is invaluable for making crucial decisions relating to your build and avoiding any unexpected cost hikes.
Prime Cost Item (PC)
What is a Prime Cost Item?
Prime costs (PCs) are allowances made in a contract for the supply of materials. These might include appliances, sinks and taps, amongst many other things. They are presented as dollar value amounts in pre-contract agreements in cases where the specific items in question haven’t yet been selected. For instance, if you’re renovating your kitchen, you know you’re going to need an oven, so an allowance (or PC) for the cost of that oven needs to be made.
Why is it important to know about PC items?
Having figures relating to your PC items can be useful for allocating budget in the early stages of a project. In essence, they provide a rough indication of the sorts of expenses you should be expecting to pay for vital appliances and other fixtures as the project progresses.
It is essential to keep in mind that allowances made for PC items only cover the supply of the item itself. Any associated labour costs tend to be included in either the contract price or as one of those aforementioned PS items.
How to make Prime Cost items your bitch
The price tags associated with PC items are likely to change depending on your final selections. If you ultimately decide on fixtures and fittings that are more expensive, you will be the one to incur the additional costs.
Associated budget blowouts can best be avoided by making decisions about your fixtures and fittings as soon as you can. In an ideal world, this should happen before a contract is signed with your builder.
Preliminary Building Agreement / Contract (PBA)
What is a Preliminary Building Agreement?
A Preliminary Building Agreement is a pre-contract document that outlines all tasks required for the completion of your project. This is required before your final building contract can be drawn up and signed. Such tasks might include:
- Working drawings
- Engineering drawings
- Soil tests
- Detailed fixed price quote
How much do Preliminary Agreements (Prelim’s) cost?
Obtaining a Preliminary Building Agreement with an accurate fixed price will cost roughly $1,650. If you require drawings, reports and permits, this could add an extra $3,000 plus, depending on the size of your project amongst other things.
Extension Of Time (EOT)
What is an Extension of Time?
An EOT is an extension of the number of days outlined in the initial timeframe and signed contract required for completion. An EOT is usually suggested only in the most extreme circumstances and is often the result of factors outside of the control of the builder. Examples might include anything from changes made to the plans by the owner without first consulting the builder, right through to inclement weather.
Why is it important to know?
While things like adverse weather conditions can neither be planned for nor avoided, other contributing factors such as ongoing changes made by the client can be. It is important to note that every time you make a change to your plans, you will likely see your project delayed by some degree.
Dealing with EOT’s
With adequate planning, you can prevent many of the variations that can result in an EOT, and avoid your project running over deadline.
What is a variation?
A variation is a change made to your project after your contract has been signed. A variation document outlines:
- what needs to be changed
- the costs involved including admin fees
- additional materials and labour requirements
- impact on the timeline
- steps required to complete the changes.
There are two main reasons for a variation. The most common is that you simply change your mind about an element of your project once the planning stages are already complete. The second is caused by unforeseen work that becomes necessary but was impossible to predict in the earlier stages before the contract was signed.
Why is it important to know?
There’s no sugar-coating this one. Variations made throughout the project can significantly slow the progress of your job. They will likely end up leaving you liable for extra costs over and above the figures quoted in your original contract.
Dealing with Variations
Make sure you are happy and comfortable with everything in your contract before signing it. This will help minimise the risk of changing your mind later on and avoid those pesky extra costs and delays.
What is a Builder’s Margin?
The Builder’s Margin refers to the amount of profit added by the builder to cover their overheads and expenses. It is added to the final cost, alongside the more obvious and recognisable costs such as labour and materials.
Why is it important to know about Builders’ Margins?
According to the Home Builders Compensation Fund, any builder offering less than a 25% mark up falls into the medium to high-risk category. For that reason, you need to be careful when a builder submits the lowest price, and give serious thought to whether they are the right contractor for the job. The worst-case scenario is that your builder is not able to complete your project for financial reasons, leaving you to pick up the pieces.
Do you “get what you pay for”?
Focus on factors other than price when making that all-important decision about which builder to work with. It’s usually worth paying a bit more to enjoy the confidence and peace-of-mind that comes with knowing your builder is going to be able to deliver on their promises. For that reason, you’ll want to choose a professional and well-regarded builder, with proven systems and processes, and a track record for completing jobs on-time, to a high standard and within budget.
What is a rock clause?
A rock clause is a stipulation included in all building contracts, to protect the builder from the unfortunate, unforeseen prospect of hitting a rock bed during excavation. In reality, this cannot be avoided. But at the very least, it’s important to be aware of it.
Why is it important to know about the rock clause?
This is an example of one of those unlucky, unexpected costs that can’t be accounted for when scoping out your project and finalising your budget. It is vital to be aware that if a rock bed is hit during construction there will be extra fees associated with continuing the job, over and above the costs of a typical dirt excavation.
Of course, for a first-timer or even an experienced home renovator, all of this terminology can seem overwhelming. I hope this blog has helped to reassure and educate you about certain aspects of the process. And if you have any questions, the JTDODD team will be more than happy to answer them. Get started right now by contacting us and introducing yourself. Simply click here!