Resolve Business Disputes and Select and Prepare a Construction Contract

1. Resolve Business Disputes and Select and Prepare a Construction Contract Lesson Five Cert IV - M. S. Martin March 2012

2. Todays Lesson • Note to Dispute resolution section of Legal & Finance Text • Overview of Contract Types • Text Chapter Two • A Closer look at a Cost Plus Contract Sample • Relate this to a specific Project (Eg. Mal Plan Set) Cert IV - M. S. Martin February 2012

3. Contract Types • Lump Sum • Lump Sum with Rise and Fall • Schedule of Rates Contracts • Cost Plus a Fee • Cost Plus a percentage commission • Design and Construct Contracts • Management Contracts • Do and Change (not recommended) Cert IV - M. S. Martin January 2012

4. Lump-Sum • The contractor completes the work as documented, for a fixed amount of money • Most commonly offered contract with merchant builders. • Merchant by definition means “someone who buys and sells” therefore, in this context we would call them “spec builders” • Common in residential construction • appropriate when the particulars are clear and unambiguous • The contract sum is simply expressed as a lump sum, subject to any…. • Additions or subtractions that have been allowed for in the contract • Often incorporates an independent administrator, to oversee for both parties Cert IV - M. S. Martin January 2012

5. Lump-Sum with Rise and Fall • The same as a Lump-Sum • But with a provision for an increase or decrease in the cost of materials, plant and/or labour • That may occur during the course of construction • Rarely used in residential building Cert IV - M. S. Martin January 2012

6. Schedule of Rates Contract • Used where the exact nature or quantity of work requiring to be done is not known at the commencement. • Each item of work must be described in sufficient detail for its costs to be determined • Estimates are given of the quantities of each item required • Normally no guarantee is given as to whether the estimated quantities will be reached or exceeded • A reasonable approximation is given at tender, and final sums are assessed on completion Cert IV - M. S. Martin January 2012

7. Cost Plus a Fee • Similar to a schedule of rates contract • Here the builder’s profit is expressed as a fixed sum • The actual cost of the work includes the labour and materials involved in completing the job • But does not include on-the-job expenses, such as the cost of plant and equipment, and business overheads • The cost plus fee contract is used where the work is complex, difficult or its extent is difficult to establish • The builder is paid for the invoice costs of materials, labour and subcontract amounts • This contract is open-ended in the sense that the contract sum is not specified Cert IV - M. S. Martin January 2012

8. Cost Plus a Percentage Commission • This is used in similar circumstances as for the previous item • The exception is that the contractor receives additional payment in the form of a percentage of the total cost • The percentage, like the fee in the previous item, pays the contractor for builder’s overhead and profit Cert IV - M. S. Martin January 2012

9. Design and Construct Contracts • This form of contract includes the design service in the builder’s contract • Come in a wide range of forms and tend to be complex • The tender documents often include a design brief and a mechanism to manage costs • They will sometimes require prototypes Cert IV - M. S. Martin January 2012

10. Management Contracts • Incorporates a construction manager directly responsible to the building owner • The construction manager would normally become involved in the project during the design phase • The construction manager, as the term implies, manages the construction • the project manager has management of the overall project, including the client’s consultants Cert IV - M. S. Martin January 2012

11. Do and Charge • Difficult and not recommended for the following reasons • difficult to establish sound contract conditions • historically end with an argument between contractor and proprietor • creates an opportunity for exploitation of one of the parties involved Cert IV - M. S. Martin January 2012

12. Cost Plus – A Closer Look • Handout Sample • Briefly look over the document and answer the following • How does this differ from the contract from last week (OFT) • Would you use this type of contract as a contractor? • Would you use this type if you were the Client? Cert IV - M. S. Martin January 2012

13. References • Competency text for ‘Resolve Business Disputes and Select and Prepare a Construction Contract’ • Reference text ‘O-Ten Management One 2182G’ • Web sites as listed below: http://www.macmillandictionary.com/dictionary/british/merchant www.homebuildingonline.com.au/samples/ www.comlaw.gov.au/Details/F2009C01105 http://www.fairtrading.nsw.gov.au/default.html http://www.cttt.nsw.gov.au/Dispute_resolution.html Cert IV - M. S. Martin January 2012