Fixed price contract or no such thing?

Discussion in 'Legal Issues' started by Sackie, 29th Oct, 2019.

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  1. Sackie

    Sackie Well-known cafe bum of the East Premium Member

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    I've never really had any issues with unwarranted variations to a FPC (besides some increase to PS but that's not really a variation) thank goodness but I was bored today so carefully read over my contract from beginning to end and there are so many holes in FPC where the builder can just call a variation. I don't really see what protection a FPC offers in reality then. Just some clauses I cut and pasted:




    12 VARIATIONS BY AGREEMENT


    12.1 Request for a variation


    Either party may request a variation of the Works.

    12.2 Contractor not obliged to perform variation


    The Contractor may, at its discretion, agree to any variation requested by the Owner.

    12.3 Agreement to vary the Works


    The parties may agree to vary the Works by adding work to, or omitting work from, the Works. The Contractor must

    ensure that any agreement to vary the Works is put in writing in a variation document, and a copy given to the Owner, within five (5) Business Days from the date of agreement, and before any work the subject of the variation is started

    12.7 Paying for variations


    Where a variation results in an increase to the Contract Price, the Owner must pay the Contractor the amount of the increase in accordance with the time stated in the variation document.

    13.2 Increased cost of compliance


    If the cost to the Contractor:


    a) in complying with any statute, other law or any requirement of a local government, private certifier or other body having jurisdiction over the Works, increases after the date of the formation of this Contract; or

    b) in carrying out the Works, increases after the date of the formation of this Contract as a result of the introduction or increase of any fee, tax, duty, charge, levy or regulation, the amount of the increase is to be added to the Contract Price.

    13.3 Variation due to compliance with statutory requirements

    If the Contractor's compliance with a statutory requirement requires a variation of the Works, the Owner must, within five (5) Business Days after receiving a variation document provided by the Contractor that complies with the requirements set out in Clause 12.4, give to the Contractor a written notice agreeing to the variation unless the stated adjustment to the Contract Price, or method for calculating the adjustment to the Contract Price, because of the variation is unreasonable having regard to the extent of the work to be added to, or omitted from, the Works.

    14.2 Variation due to Latent Condition


    Subject to Clause 14.3, the Contractor must vary the Works to overcome any notified Latent Condition that affects the Contractor's performance of the Works in accordance with this Contract








     
    Last edited: 29th Oct, 2019
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    What form of contract is it?
     
  3. Sackie

    Sackie Well-known cafe bum of the East Premium Member

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    Master Builders, residential building contract Level 2.
     
  4. Rooky

    Rooky Well-Known Member

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    Seems fine to me. Variation is based on mutual agreement - first line in section 12.3 confirms this.
    Section 12.2 says that contractor may refuse the variation at his/her discretion.

    So lets say - there is variation to replace laminate benchtop with stone benchtop. Client has to pay for additional money. Same way, builder will need to pay to client if its other way around.

    Thats why its called fixed price contract. Any variation, if mutually agreed, will result in change in price.
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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    @Sackie - like any contract the clause must be read in its entirety not just 3 or 4 of the sub-clauses in isolation. There are other impacts of the variations including the impact on programme and preliminaries.

    Likewise, a variation cannot be commenced until agreed or notified (in some instances) however a timeframe exists around approvals.
     
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  6. Sackie

    Sackie Well-known cafe bum of the East Premium Member

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    Thanks Guys. I guess it also comes down to your specifications about certain details.

    I've had in the past zero dollar variations where the builder found an alternative solution at no cost to me. I guess it's really a process where both builder and developer need to come to some kind of an agreement. There definitely is grey area I reckon but nothings perfect.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    The more that is specified, the less wriggle room there will be but it also comes down to the selection of the most appropriate contract for the project.

    Construction contracts are designed, if administered properly, to ensure that the builder has minimal cash outlay of their own during the project. That is, the deposit is just that - it is not applied against works in progress and is used to balance out the final progress claim (tricky concept to grasp).
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Those terms relate to variations of the contract. These are needing in case changes are needed. You couldn't have a fixed price for these until they are known.
     
  9. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yep fair point. We had a FPC for our home. We wanted extra tiling, carpet became less but we upgraded etc. We had a extra price quoted with an adjustment for the original allowance, paid the extra and it was then a higher fixed price.

    Variations in the world of contracts can be a money maker. Typically a mark up on the variation with a poor allowance for the original spreads the margins. And its take it or leave it. Negotiation power is very limited. In the world of civils etc its "rock" vs soil. Our pool hole had a FPC.....The very first scrape said it was all rock. And "Michelagelo" the excavator chipped the hole out. Our house sits on a sandstone base. Ouch.
     
  10. Sackie

    Sackie Well-known cafe bum of the East Premium Member

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    Yikes that would have been a costly exercise..
     
  11. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yeah - I can still hear the squeal of steel on stone with a bare 100mm of grass and soil covering it. Excavator (Brian) looks to me and says - Do you want to proceed ? Difference was 9K or so and we had expected it was probable.
     
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