What does 'fixed price' mean?
By Rachel Lee
Peter and Hazel wanted to start a family and needed the extra space. They decided to upgrade the “first home” they had owned for seven years. After months of viewing multiple properties online and attending various open homes, they worried whether they would ever find the right home.
After viewing a recently completed show home, they decided to look into building a new home.
They found the ideal site in a newly formed subdivision up the coast and submitted an offer through the agent. The offer was conditional on a due diligence investigation which would allow them to undertake a thorough check on the site. They were very excited when their offer was accepted.
Peter and Hazel began looking for a builder to construct their dream home. They had no idea of the likely costs, or what exactly was involved, so needed to go over everything before they committed to the site purchase. They spoke with a builder that was recommended by a friend of a friend and were satisfied that they could build what they wanted on the site.
They approved a draft concept for a house and decided to secure the site before they missed out. They confirmed that the section agreement was unconditional and paid the deposit. The new certificate of title was expected to be out in the next couple of months, so they needed to finalise their plans with the builder.
The builder gave them a rough idea of what the project would be likely to cost, and they were happy that it would all come within their budget.
Peter and Hazel were anxious for the build to commence as soon as possible, so the delays in obtaining the building consents were causing some frustration. They felt that their builder was not giving sufficient attention to their project.
Eventually the building consent was issued, and work commenced. After having paid several progress payments for the project, the builder told them that there was a problem with the formation of the drive and an engineer’s report was required. Peter and Hazel thought they had a fixed price contract but learned that the cost of an engineer’s report was excluded and their price increased accordingly.
The builder informed them that the driveway would require substantially greater earthworks as a consequence of the engineer’s report. The cost of the earthworks would increase their contract price by $30,000. The $6,000 for earthworks provided for in the contract was a “PC Sum”, and they were responsible for the additional cost.
They learned the hard way that “fixed price” does not necessarily mean “fixed price” in this context.