Fixed Price Contract: What does it really mean?

Quite often people assume that fixed price contract anticipates no change to the price or lead time of the works and feel very comfortable visiting the construction site on more occasions than required and making “minor changes” to the scope of works throughout the project.  The shock on their faces when they are presented with a huge bill at the end of it all is not surprising.  So why does this happen and what does fixed price contract really mean?

In a nutshell a fixed price contract is a binding agreement between the contractor and client where the contractor agrees to deliver the project for the stated price. These types of contract increasingly popular because everyone wants to know what the work will cost upfront and to ensure that their project does not go over the agreed budget. Which is theoretically that is the case with the fixed price contract if all of the terms are strictly adhered to. What most people don’t know or forget is that a well written or a standard fixed price contract only includes works mentioned in the bills of quantities, drawings and specifications at the point when the contract is signed – any variation in the scope of works that are above a certain percentage of the total project value, clearly defined within the agreement, are quoted and charged for separately by the contractor. Any work that is not defined within the agreement is also defined as a variation and is charged for separately.

Taking this into consideration, any change that may seem small, such as the relocation of an electrical socket 20cm one way or another along the wall, may cost hundreds of pounds – as it would include works such as wall chasing, plastering and repainting the entire wall and what you thought would only cost you £25 ends up costing at least 10 times that amount. So if you think that by entering into a fixed price contract you grabbed your contractor by the tools – think again!

Fixed price contract is not the only contract you can have which can ensure that you don’t overspend on your building project. To avoid receipt of an astronomical bill from your contractor at the end of the project, no matter what contract you have in place, it is important to ensure that the scope of works is clearly defined and a comprehensive and detailed pack of documents is given to the contractor before works commence.  It is a responsibility of a client to provide the contractor with detailed information on the project to ensure that the works are priced correctly and no details have been missed. One of the most effective and recommended ways to do this is to involve a QS, which we have talked about in our previous blog piece à http://urbanideal.com/blog/quantity-surveyor-what-your-construction-project-really-costs/

For advice on what type of contract suits your project best or any other construction related queries  call us on 07808 772 528 or email us at info@urbanideal.com