What is a Fixed Price Building Contract and How Does it Avoid Stressful Budget Blowouts?

Building a new home can be an incredibly stressful process, especially if you don't have a strict budget in mind. And the truth is - one of the most common reasons people spend more than they had intended on their project is not reading their contract completely, or not truly understanding exactly what all the fine print means.

According to a study by a national Association of Home Builders, almost half of first-time buyers encounter budget overruns when building their homes.

Why? Because they engage with a builder that promises a fixed price, however the contract is full of open ended “allowances” that can add thousands of dollars to their build..

If you want to stay within your budget when you build your dream home, then choosing a true Fixed Price Contract is one of the smart moves you can make at the beginning of your project.

In this article, we will explain what a real Fixed Price Contract is and how it can help you achieve your dream home without blowing your budget and any unwanted stress.

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What is a Fixed Price Contract?

A Fixed Price Contract is a type of construction agreement where the builder agrees to complete the project for a set price, however, there are two key terms that you may see in a building contract, and these terms are Provisional Sum (PS) and Prime Cost (PC).

What is "PS" - Provisional Sum?

A Provisional Sum, more commonly known as a PS, is an allowance that a builder has made to complete a task. It covers labour only or labour and materials. The thing about PS’s is that they are 'g'estimates which mean they often change when the final cost of the tasks are calculated. 

Be wary if a builder has filled your building contract with PS’s as you could find your contract price increasing dramatically throughout the build. Builders who rely on using provisional sums in their quotes are generally disorganised and are not prepared to put in the time to quote your job properly. 

It’s a big red flag and the chances are you’ll be taken advantage of. Typically they include unrealistically low provisional sum allowances in their quote so that their price appears much lower than their competitors – in the hope you’ll make a decision purely based on the price. These builders know that if there is any error in their PS allowances, they will be passed directly onto the client. That's right you pay for their error, which means they have no risk or have to take responsibility. 

This is why as a professional builder we ensure that the design drawings and construction documents that we produce together with you cover off on every detail of your custom build, signed and sealed with a guarantee of no surprises or cost overruns that come out of your pocket.

What is "PC" - Prime Cost?

Like a Provisional Sum, a prime cost item is a dollar figure allowance used in building quotes and contracts by most builders. It’s essentially a 'g'estimates for materials such as appliances, sinks, taps etc. 

The major difference being that the allowance for a Prime Cost item only covers the supply of that item. Just like provisional sums, prime cost items do change depending on your final selection and therefore can incur additional costs with a builder that gets you to pick your fixtures on the fly after you sign a contract and start building. 

So as a professional builder we have our architect and interior designer work with you to determine your selection choices prior to signing a contract. This not only takes the pressure off you during the build, but also gives you peace of mind knowing the costs are locked in and won't change and cost you more than you bargained for.

We always work with Fixed Price Contract

A true Fixed Price Contract ensures that there are no hidden costs, no grey areas, a signed promise to deliver your home as per your requirements and expectations.

You are presented with a genuine Fixed Price Contract proposal to build your home with everything covered. There is no “guestimation” or use of Provisional Sums (PSs) and Prime Costs (PCs). From your tile selections, joinery finishes, door handles and beyond we have every dollar accounted for so there are no surprises down the track.

If you are planning on building your dream custom home in Townsville and want it completed within the agreed time frame and without any unexpected costs, then feel free to contact us today at 07 4724 1964 or you can book a 30-minute free consultation with us.