Say you were to buy a washing machine and the supplier told you it would take 1 hour travel time to have it delivered to your house but then charges you for 2 hours travel in case there is traffic, a car accident or roadworks. Would you be happy paying for the extra hour even if they arrived on time?
This is called paying for the ‘worst case scenario’. In the construction industry, the standard payment structure for the supply of both residential (homes) and commercial (shops and businesses) works is a fixed-price contract. ‘Fixed-price’ means that once the contract is signed, the total amount on the contract is all you will pay. Unfortunately, quite often this is not the case and the client gets slapped with multiple contract variations and extras, leaving the client even further out of pocket.
The issue with fixed-price contracts is that there are a lot of elements within building a home/shop/office building in which things can go not as planned. In order to minimise the chance of going bust (bankrupt) on a fixed-price job, the best approach is to allow for the worst case scenario on every element of the project. So, as you can now imagine, there is a good chance that once you have completed your project, you have paid a lot more than you probably needed to.
Here’s where ‘cost-plus’ has its advantages…
The cost-plus payment structure consists of the following:
Actual cost of the project + A builder’s margin added to cover the overheads of running the business
It’s that simple.
Don’t worry. You won’t be left hanging, not knowing the build cost. The builder will provide you with an estimate of the project cost which will include a % margin for the service.
The beauty of this payment structure is that the customer will only ever pay exactly what the project is worth and the builder doesn’t have to inflate his price to avoid potentially going broke. It’s a WIN/WIN scenario
I’m often asked “How do I know the builder won’t rip us off? Buy unnecessary things? Add extra hours?” This is where integrity and transparency come into it. Full transparency of the estimate, the invoices, the receipts and hours. If everything is laid out in the open there is nothing to hide, nothing to worry about.
The cost-plus payment structure: A fair, stress-free approach to your building requirements. Click here to learn more about transparency.