Construction Contracts: Which One is Right for You?

We’ve all heard horror stories about budget overruns and hair-pulling delays – and it can start long before the first brick is even laid. Picking the right contract for your construction or renovation project can save time, money, and a lot of stress.

Building contracts in New Zealand often come in two forms: fixed price and charge-up.

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Fixed Price Contract

A fixed price contract offers a predetermined total price for the project, and is typically chosen for homeowners who have a clear idea of the scope of work required and want budget-certainty. The homeowner is shielded from a variety of costs that the builder might incur, such as increases to material cost. A fixed price however, also means that the project isn’t as flexible to changes once it has commenced and because of this, any adjustments required isn’t covered by the initial price. Variations can incur unforeseen delays to accommodate for revised quotes, planning, and scheduling.

Cost-Plus Contract

Charge-up contracts involve homeowners paying for the exact costs of labour and materials used as the project progresses, as well as a builder’s margin. This contract has the potential to be cheaper, as unlike fixed price contracts, builder’s contingency costs are not included in charge-up, and finishing ahead of schedule can save you valuable labour costs. The downside is that the opposite can also be true: while charge-up is more accommodating towards modifications, there is no guarantee that the final price will be cheaper or below the initial estimate.

Whether you’re dreaming of a new kitchen, planning a new bathroom, or feel inexplicably compelled to extend your home into your backyard, taking the time to decide on your contract can prove to be invaluable in the long run, for securing both peace of mind, and potential costs.

Here at VIKON, we offer fixed price contracts with Prime Cost Sum (PC Sum) allowances. This part of the contract houses a base allowance for items that aren’t yet finalised, acting as a placeholder for when you still haven’t decided what finish or material you want. This way, you gain all the benefits of a fixed price contract while also enjoying the flexibility of a cost-plus contract without having to worry about cost overruns.