Site Specific Bookwork

It’s a chore, but processes and written records save you money, avoid conflict and help make the project run smoothly and on time

 

Most builders think paperwork is a necessary evil and the worst side of the construction business and, if you're honest, it is probably the area that does not get enough attention.

 

This section focuses on the paperwork that will help the smooth running of each project rather than the financial side of the business (we assume you have these in place!):

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Variations

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Variations can be a deletion, an addition, or just a straight change.

 

We’ve made it abundantly clear elsewhere in this publication that we feel that undertaking such variations must be known by all parties.  A specific document, signed by both parties means a systematic record is kept and provides the necessary paper trail to ensure changes and their cost implications are acknowledged by everyone. This covers you in the event of disputes!

 

Standard forms are available for

 

These must be clearly filled out and the process properly managed by the main contractor who is totally responsible for this operation, including all variations for subcontractor's work as well.

 

Variations is where a major proportion of building disputes arise because of:

 

Poor communications often emanate from the client's:

 

Lack of explanation from the contractor can compound the problem.

 

“Variations are where I make my money” is an excuse that brings the building industry into disrepute. We strongly recommend using a pricing system that ensures the client is given a fair and reasonable initial cost upfront. Variations that will inevitably occur can be charged back to the client at a fair and reasonable rate as they happen.

 

On the other side of the coin, builders should also not be used as a pricing service by clients who cannot make up their minds about changes to the work and just keep getting more prices. Sometimes it is necessary to impose charges if clients are consistently taking this approach without coming to any conclusion or authorising any additional work to proceed.

 

Communicating documented agreements of open and frank discussions identifying the full extent of the variation will avoid disputes, save you time and lead to a more productive and pleasurable job.

 

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PC, Provisional and Net Sums 

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PC or Prime Cost Sums, Net Sums and Provisional Sums can all be problems if it is not clear what they cover and how final costs are agreed. Some contract documents define such details, others don’t. We recommend spelling things out in your contract.

 

Provisional Sums cover the cost of unknown work. Net Sums or PC Sums only cover the supply of materials or fittings and the contingency sum is a pool of money to cover changes or additional items that often crop up.

 

The ideal basis for correctly pricing any unknown or unquantifiable work in sums is clear rules and reference to agreed rates of labour or labour and material.

 

All these sums are treated as variations, the sum deducted from the contract price and the agreed expenditure added back.

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Cost fluctuations

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In the past, contracts have often been fixed-price (that is, no additional charge to the client if the cost of materials or labour increases between initial quote and project start date) although the trend has been away from this, especially for more expensive jobs.

 

There are three alternatives for dealing with these cost fluctuations:

  1. Ignore them and make sure there’s enough margin in your quote.
  2. Use a formula tied to the value of work completed at various stages and linked to the labour and material economic statistics. This is not common in housing projects but different formulas appear the NZIA Condition to Contract and New Zealand standard NZS623 Conditions of Contract for Civil Engineering works.
  3. Include a process for applying for any increases that occur during the construction process.

 

Use of the formula in the past has caused scepticism: it is complex and statistically based which can lead to distortion in the result.

 

In most cases, establishing a benchmark from which increases are measured, and the bookwork involved in producing evidence of such increases has led to wariness and uncertainty of what can be claimed.

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Progress payments

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Progress payments for the main contractor should have been established in the main contract and we have discussed these in the section, ‘Managing Costs While Building’.

 

The Construction Contract Act provides a clear set of rules, rigid guidelines and specific timeframes for the progressive payment for building work. These rules similarly apply to the payment of subcontractors, who also have a right to claim for progress payments. There are also special rules when dealing with Homeowners as compared with a business.

 

Construction Contract Act  compliant documentation, approved by several professional organisations for this purpose complete with explanatory notes is available for downloading off the New Zealand Institute of Quantity Surveyors web site: www.nziqs.co.nz.

 

Progress payments should also include a financial statement of the project at that time and include all variations agreed to date, plus any outstanding variations so the client gets a true picture of the cost of their building.

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Final Account

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A final account is just that: a financial statement showing the original contract sum and the fullest extent of all the other financial transactions that have affected the building project, the bottom line being what is still owed to the builder. Needless to say, this is definitely the wrong time to bring in any new costs!

 

Be wary of allowing customers into their new home until this final account is paid.  Be especially wary if there is owners work (driveways and landscaping) for the house to get Code Compliance Certificates.  Many banks will not allow final mortgage draw down until CCC is issued.  This can mean that the payment for the paths and driveways ends up a higher priority than the builder.

 

Given all variations and their cost implications and all increases in costings have been covered off in an open and transparent manner, there should be no problems with getting the final payment.