Cost plus contract for new house construction

Discussion in 'Development' started by Reddy, 14th Dec, 2018.

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  1. Reddy

    Reddy Well-Known Member

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    Hi All

    I am planning to do cost plus contract with a builder for new build small house 21.5 sq single story in a new estate in Melbourne.

    I can see savings about 20-30k compare to fixed contract and I also compared quotes with other volume builders. Some of the quotes is very high and I can see savings up to $45k

    I found some builders who are okay with 10% to 15% of their margin on top of the cost

    But getting the accurate cost is tricky part. I want to hear your views. Has any one hired a quantity surveyor to estimate the cost?

    Do they price fixed cost with supplier details ?

    I already have architectural, structural engineering plans and very close to get council approvals. Already hired private building surveyor who will do inspections of the builder work later once I move on with construction

    I also like to do some of the work by myself as well. Cost plus suits me but I haven’t done it before. Just wondering what you all think about cost plus contracts? What are the risks? Do’s and Don’ts?

    There is another thread I was reading from last year about renovations cost plus, in that thread, Some of you already suggesting it’s no go zone. But still want to hear from anyone who had positive and negative experiences?

    Thanks for help
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    If you plan on getting a mortgage for the construction then you may run into issues. As far as I'm aware banks will only lend on a fixed sum contract and not a cost plus contract.
     
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  3. Reddy

    Reddy Well-Known Member

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    Thanks you @Westminster

    Yes I will need mortgage.

    If that’s the case another option I will explore is to talk to builders to see if they are okay to do fixed cost contract with up to lock up stage so I can do some of the work to save $$
     
  4. Sackie

    Sackie Well-Known Member

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    I work with a fantastic estimator on my projects. I tell him the budget and target market and we basically work together to choose/cost all the building materials and internals etc which will fit the budget so we know the exact or very close costing. Then we send it to tender knowing what it should come back as, as we've detailed all the materials. Also when the tender comes back my estimator will look at all the break downs the builder has done and then suggest further cost saving ideas because he knows the costs of everything intimately.

    I have found this to be a fantastic way to reduce risk, basically tell the builder how you want it built with what materials and stay on budget whilst being extremely cost effective. Also saves a lot of time later on going back and forth with the builder.
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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    I can see overruns of $60-80k over the cost of volume builders.


    You're building a bog standard house. Project home builders are generally the cheapest by far however you may have differences in quality between project and boutique builds.

    Your greatest risk in a falling market is overcapitalisation ie spending more than it's worth.

    The builder has seen you coming with a big beacon on your head. Do not enter a cost plus contract for anything which can be and should have been designed.

    Why can't the builder price the work? Can't you make up your mind as to what you want?

    This type of contract is used where there is insufficient time to document a project, where construction time is tight, the user requirements are not fully established, techniques are new/untested. A suburban house does not meet these hurdles.

    What don't you know about the project that cannot be documented by the designer/architect/specifier to enable pricing?

    Items which cannot be documented should be included in a schedule of provisional sums or schedule of rates so that there is an appropriate allowance made.

    Valid but only If you have skin in the game.
     
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  6. Joynz

    Joynz Well-Known Member

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    When you say the quotes from volume builders are high, does that mean you have had full quotes done - including any upgrades like down lights, higher ceilings, etc?
     
  7. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    You are going to run into serious problems getting a construction loan with either:
    1. Cost plus contract - as the bank will control the entire amount to complete the construction so they don't end up with a partially completed house which they have to sell. With a cost plus contract the don't know the exact cost.
    2. Getting it to lock up and you doing the finishes your self - Same as above, the bank wants to know they control all the funds to complete the construction. That's obviously not possible if you are planning on doing it yourself.
     
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  8. Reddy

    Reddy Well-Known Member

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    Thanks @Sackie for the reply

    I am looking for a good estimator who will estimate the cost and also provide supplier details

    I will inbox you if you don’t mind to get your eastimator details
     
  9. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    @Reddy I know a great QS based in Richmond, let me know if you what his details.
     
  10. Reddy

    Reddy Well-Known Member

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    Thank you @Simon Moore
    Yes please if you can share their contact details that would be appreciated

    I also like you previous comment I am being diligent on this contract if I go towards it I really want to get it right

    I heard some QS and estimators will also recommend what to include in the contract to protect my rights.
     
  11. Reddy

    Reddy Well-Known Member

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    Thank you @Joynz

    The ceiling height is 2700mm other than that The house is medium finish over all nothing fancy inclusions
     
  12. Joynz

    Joynz Well-Known Member

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    Then I am puzzled about your comment that quotes from volume builders are high. I’ve looked at lots and they seem pretty good value to me.
     
  13. Sackie

    Sackie Well-Known Member

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    This should be a very simple project with predictable build costs. Id be looking for a fixed price contract from a competitive building company . I'd keep it simple and not add any more unnecessry layers of risk.