Charge-up Pricing Tips
While the different methods of quoting and charging for partial and full work may seem basic contracting principles, there are a lot of interpretations and opinions as to how they are set up and applied.
For this edition we will briefly look at the advantages and disadvantages of charge-up , consider what is and isn't included and provide a check sheet for establishing best practice for your company processes.
• work can start almost immediately
• the extent of the work does not have to be fully identified at the start
• the client pays for all the work that is involved
• the exact extent of the work may be unclear
• total cost of the project is unknown
• no incentive to work efficiently
• no incentive to minimise material wastage
A Building Consent?
Obviously, the extent of the work will dictate whether a building consent is required or not.
There is an advantage of being able to start work immediately without the hassle of preparing full documentation and no delays or challenges to bureaucracy in gaining a building consent.
Full documentation is required for building consent whereas a general outline of what is required is all that may be needed for non-consentable work.
To maintain good client relationships it is essential that a contract is developed to cover the work required and this should include some description of the project or extent of the work that sets the parameters of the work.
Even with consented work with full drawings and documentation, charge-up is a genuine payment option and in fact some builders with a sound reputation well only contract out all their work on this basis.
However, while there is always a concern from the public that it is not competitive pricing situation, a section of the market seems to be happy with this arrangement providing an indicative maximum price is quoted.
The reputation of such builders is that their clients pay a reasonable amount for a quality end product and these builders stay in business, so it must work! However, it is important that the basis of the charge-up are known by the client at the outset to avoid any later arguments.
Review the following checklist when you are next setting up a job to see if you have thought of all the costs and how fairly you are treating your clients.
Checklists for establishing actual building costs using charge-up
hourly rate charged for work done
different rates for individual workers depending on skills?
travelling time charged/not charged for staff
mileage allowance charged for travelling time and/or material deliveries?
proof of hours by presentation of log book/diary
signed form confirming attendance on site [signed daily]
method of payment [weekly/fortnightly/monthly/completion of work]
material payment procedure on provider invoices/delivery sheets
payment of material net with builders discount /trade rates/retail rates
other on-site specific costs such as scaffolding, skip for waste removal
toilet/power/water costs charged when not provided free by owner
use and management of registered plumbers/gas installation/drain-layers/electrician and their costs
use and management of other sub-contractors
procedure for work done by owner
additional builders margin/profit [if any] on own work
additional builders margin/profit [if any] on sub-contractors work
expectations of how other tradespersons will present their costing details
Regular summary of costs to date and projected total
possible cash flow projection for building costs aligned with programme
While this may seem a formidable list, in some cases the full list is not required for all projects, however it may have triggered a few thoughts as to how you should be setting up and running your charge-up costing system more efficiently, more accurately and in a more professional businesslike manner.