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Over the last two years, The Australian Financial Review released data that home building costs have risen – surging by 7.1% in 2021 alone. For many prospective Australian homeowners who are looking to renovate or build, it’s common to feel overwhelmed or unsure about how this increase will impact your upcoming project.


While the construction and property industries have faced significant changes, working with a trusted builder will both ensure your build is achievable at a fair price point for all parties involved and limit delays to the project’s timeline.

Continue reading to learn more about the increase of building costs.

FIXED PRICE CONTRACTS VS COST PLUS

As a builder, it’s our preference to always lock in a fixed price contract with our clients to reduce their overall risk in the build. When your contract is being organised, it’s up to your builder to accurately and transparently provide a price point in the early stages. Once an agreement has been reached between both parties, your initial price is locked in and your project is cemented as final.

In comparison, a cost-plus contract can often lead to all building cost increases to be at the expense of the homeowner rather than the builder. From slow build times, builder overheads, and material or trade increases – unorganised builders can legally pass all of these additional charges onto the client leading to exorbitant budget blowouts and financial stress.

When you use a fixed-price contract, your builder will be as meticulous as possible in defining the scope of work for your project. Not only will your builder work with you to ensure your vision is translated with precision, but you’ll also obtain a detailed preview of what’s involved in your build. This reduces the risk of building cost increases by securing contracts with all material suppliers and trades early on.

Additionally, due to the nature of building increases in the current climate, your builder will finalise all pricing as close to signing your contract as possible to minimise the risk of cost increases between the time of submitting their initial price and signing the final contract.

Ultimately, choosing a fixed-price contract guarantees an extra layer of security. By setting an agreed upon price at the beginning of your project, your contract will remain unchanged and you will avoid additional expenses from start to finish unless you request variations. A fixed-price contract ensures the price of your build remains the same regardless of extra time, materials or labour than first estimated – empowering you to experience a stress-free building journey from concept to completion.

FINANCIAL LOSSES

Facing an alarming increase in bankruptcy, builders have been experiencing significant financial hardship over the last two years. The Australian Financial Review highlights insolvencies within the construction industry have spiked by 40% in the December quarter compared to the September quarter alone.

To combat this risk, an organised builder will obtain trades and suppliers early on including up to date estimating rates, and plan ahead for material increases when pricing their contracts. Additionally, we recommend ensuring that your builder utilises a project management software to organise job schedules such as Buildertrend or Procore – demonstrating total control over all projects and offering you peace of mind.

REDUCE PRIME COST AND PROVISIONAL SUM ITEMS

When builders add prime cost and provisional sum items into a contract, this provides greater flexibility in pricing certain aspects of the build to better suit the client’s needs. In the case that you haven’t made a final decision at the time of signing the contract, you can provide a budget that you wish to spend on a specific item. Your builder can work closely with this allowance to accurately finalise your contract and avoid variation fees later down the line.

Alternatively, some builders will account for items as a provisional sum knowing that the client’s allowance has been substantially under-estimated. When the true cost of this item comes to light, the client can face a significant increase in variation costs resulting in unforeseen financial stress placed solely on the client.

CHOOSE A TRUSTWORTHY BUILDER

Working with a reliable builder is key to the success of your build. Providing expert advice along the way, a reputable and highly organised builder can give you a clear idea of total costs upfront, including any relevant site considerations and material variations.

Additionally, builders that nurture strong industry relationships with suppliers will be able to stay up to date with incoming price changes for materials – allowing them to predict and offset cost increases for the duration of your build.

Ready to get started with the process of your build? You’re in the right place – Get in touch with TCON today.


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