Is this normal in the current climate or are we being held to ransom

James, that’s one of the dodgiest things I’ve ever heard and I’ve been subscribed to this blog for years! That’s like your builder is saying ‘cough up 30k and I won’t abuse the pc sums, if you don’t I can’t guarantee that I wont’ Chris will weigh in on this and he’s the contract expert but PC sums can actually have a fairly close estimation put on them, and if the guys you’re building with won’t give you this figure (effectively making it a fixed price) I would run a mile in the opposite direction. I know that there really isn’t any such thing as a fixed price, but with a good contract looked over by a good construction lawyer and with very close observation by you (eg, don’t let them make any changes during your build without written consent by you) this can be achieved. Contract! Good, specialised lawyer! Might cost you a few $$ beforehand but can save you tens of thousands later on. Not to mention what it saves you in stress, you can’t put a price on that and if they won’t agree to any changes in the contract your lawyer advises then again, run in the opposite direction. Their request for $30k to alter the pc sums clause in their contract is a huge alarm bell and if it were me I wouldn’t even waste my time or money taking this to a lawyer, I’d get out. Please let us know how you get on? I’d love to hear what reasoning your builder gives for this?

Hi James, Usually I agree with pretty much everything that MJ says. For once I have to say I can see why he would have some concerns, but I don’t entirely agree with everything he’s said. First I’d just nitpick a bit on the use of the term PC sum. If you click ctrl F and search PC (ie Prime Cost) and Provisional (Sum), I’ve said before what I think is the difference. Typically for things like earthworks, I believe it should be Provisional Sum (or Quantity), which means a dollar amount allowed for something when the final quantity is hard to calculate at the time you sign the Contract. Everything I say here is on the assumptions that: a) you are dealing with a reasonably honest builder, so you can consider this offer at face value, b) you have checked out the Contract in other respects, and you’re happy with it, c) there are no ‘weasel words’, through which the builder can make adjustments to the final price (or at least not for the items you believe you’ve ‘paid’ to fix), d) you’re not the kind of Client who likes to vary lots of stuff during the build, laying yourself open to the re-negotiation of the price. All construction contracts are basically about the allocation of risk. When builder’s are in competition for jobs, they are often pushed to reduce the price to get work. So it can be a risky business, with quite low margins. If Clients want a fixed price the builder has to guess at what materials, labour and subbies will cost, often many months in advance. So the more they can reduce the risk, by having parts of the work paid according to their actual costs + a profit margin, the easier it is to stay in business. The question is how much are you prepared to pay the builder to take on the risk of price increases, so you don’t have to? On a number of occasions I’ve said to a builder or consultant give me a fixed price for a job, and if that means you have to charge a bit extra to cover your risk that’s OK. Just tell me the price, and let me decide whether to accept it. And I’ve found it usually works to my benefit (or at least peace of mind) in the end. So I’m not quite as horrified as MJ is with the builder’s offer. To me it’s just a reasonable suggestion, which you can accept if you think it’s worthwhile. I would hope that there’s no suggestion the builder will abuse the Prov Sums if you don’t accept. Although if they’re just a sum of money, with no quantities or rates attached, that’s always a possibility. I mean if you don’t know what the original sum was for, then how do you know if a revised sum is fair? I have no idea what you expect the final build price to be, the value of the Provisional Sums, or the expected cost and quantity of the earthworks. So I don’t know what percentage of the Contract $30K is. But I assume it can’t be more than about 5%. So I guess the questions you need to ask yourself are, in a worst case scenario: a) How much extra might the earthworks cost? That will depend on the type of foundations, how much site investigation you’ve done, the time of year and the weather, and of course how much the earthworks subbie charges when the works are carried out. Sometimes, as MJ says, that can be reasonably easy to assess. But sometimes it isn’t. Which is why Prov Sums are used. b) How much might the price of materials go up over the course of the build? Has the builder already based his price on assuming some increase, or just taken present day prices, knowing he can charge you for any increases? How will you feel if/when that happens? Can you perhaps agree on a maximum % increase, so you are kind of sharing the risk? c) If the builder had never offered you this option, and had just quoted you a ‘fixed price’ that already included the $30K, would you have accepted it? I hope that’s some help with your decision.

I hope you pulled out of the deal mate. You are better off having PC sums anyways as you can ask for any invoices or data related to PC sums to make sure they are correct.

Yes, as usual Chris you are the level headed one and I just react first and think later so sorry James if I alarmed you but I suppose the whole thing hinges on your contract as it stands now. The last build I did I got several different quotes from builders and building companies and one thing that I remember was that each had it’s own version and variations as to what constitutes a PC. Some were more confident at setting prices on certain things while others were not but not one of them was the same and the only thing that was similar, which our lawyer always found (bless him) was that the wording was vague which was intentional for many of these outfits. We asked for changes to the wording, 99% of these quotes said No, we never make changes to our standard contracts and we walked away. Simple. So if your contract has clear definitions of what they consider to be a PC then as Chris pointed out, it’s probably not a bad way to go especially given the state of building materials and transit delays etc at the moment. The issue I had (and again I apologise for not making this clearer and sounding all doomsdayish) is that this offer has only been presented to you now and by the sounds of it you are well on your way to putting in your first pile? Please correct me if I’m wrong. I see an awful lot of people become over-invested either financially or emotionally in their build before the due diligence is done, only for the terms to change at the last minute and they feel they have no choice but to say yes and keep going because they would lose too much to say no and I don’t want this amended clause to be like that for you. As Chris has said numerous times, to walk away from $5k’s worth of drawings etc because the contract is sub-par could possibly save you $50k down the line. Get your lawyer to look over it, even be the devils advocate and argue it’s pros and cons with you. I know at the end of the day $30k is a drop in the ocean compared to what you’ll eventually part with but that’s all your landscaping, fencing and perhaps decking funds so take the time to think it through. Don’t let them rush you. If they put pressure on you to accept before you can do some sums then maybe it is a little hinky? Let us know how you get on?

Yes, as usual Chris you are the level headed one and I just react first and think later so sorry James if I alarmed you but I suppose the whole thing hinges on your contract as it stands now. The last build I did I got several different quotes from builders and building companies and one thing that I remember was that each had it’s own version and variations as to what constitutes a PC. Some were more confident at setting prices on certain things while others were not but not one of them was the same and the only thing that was similar, which our lawyer always found (bless him) was that the wording was vague which was intentional for many of these outfits. We asked for changes to the wording, 99% of these quotes said No, we never make changes to our standard contracts and we walked away. Simple. So if your contract has clear definitions of what they consider to be a PC then as Chris pointed out, it’s probably not a bad way to go especially given the state of building materials and transit delays etc at the moment. The issue I had (and again I apologise for not making this clearer and sounding all doomsdayish) is that this offer has only been presented to you now and by the sounds of it you are well on your way to putting in your first pile? Please correct me if I’m wrong. I see an awful lot of people become over-invested either financially or emotionally in their build before the due diligence is done, only for the terms to change at the last minute and they feel they have no choice but to say yes and keep going because they would lose too much to say no and I don’t want this amended clause to be like that for you. As Chris has said numerous times, to walk away from $5k’s worth of drawings etc because the contract is sub-par could possibly save you $50k down the line. Get your lawyer to look over it, even be the devils advocate and argue it’s pros and cons with you. I know at the end of the day $30k is a drop in the ocean compared to what you’ll eventually part with but that’s all your landscaping, fencing and perhaps decking funds so take the time to think it through. Don’t let them rush you. If they put pressure on you to accept before you can do some sums then maybe it is a little hinky? Let us know how you get on? I’d be interested to see if this offer is popping up a little more frequently now due to the current climate?

Hi Shane, I guess yours is a response to James Chapman’s post on Sept 19, 2021 (not 2022). MJ and I both made some comments at the time (try hitting Ctrl F, and putting ‘Hi James, Usually I agree’ in the search box. It will bring up my reply, and MJ’s are close by). Unfortunately I don’t think we ever got a response from James, so no idea whether he ever took the deal, or how it turned out. But for others considering something similar, I suggest they look at my reply mentioned above. I realise your reply was sent in good faith, to try to help out. But as I said in my reply, it’s much more complex than just a straightforward accept or reject. It could be a mistake, or it could turn out to be a very good deal, but as the old saying goes ‘The devil is in the detail.’. Also, be cautious about assuming it is automatic that you can ask for information and a breakdown on the final cost of Provisional Sum items. As with everything else, it depends what it says in the Contract. Several people have written to this blog, unhappy because their builder won’t give them that kind of information. As I’ve said elsewhere, Prime Cost (PC) items are different, and not generally intended to be used for things like earthworks.

Ahh Chris, holding this blog together I see! You really should write a book for first time home builders in NZ, I’d buy it and I’m sure others would too. The right kind of advice is not readily available nor can it be trusted so I think it’s a bloody good idea 🙂 you don’t stand to gain anything by giving your advice which is why I think it could be a best seller and I’ve heard we all have at least one book in us all so maybe this is yours?

Hi MJ, Thanks again for the kind words. But I think the man for that job is Mark Graham, who edits this blog. At one stage he contacted me, and said he intended to write one. He asked whether I was interested in giving comments on his draft. If he ever goes ahead I would suggest he also contacts you. Although I think there are probably books/guides already available. One of the problems being that I suspect the people who most need to read up on the subject are the ones least likely to. A recent comment said something about not being an expert on building, so why should he have to understand this kind of stuff. It would be nice if that were true. Unless of course you have a stack of money to employ people like architects and QSs you trust to take care of things, and a further stack of money to pay whatever the final bill comes to. You and Anne Jones made some valid comments about ‘fixed price’ and extra payments on 25/8/22. She was a bit blunt, but wisely said something like, if you don’t understand or like how the building system works, perhaps you should just buy a finished house. And when I’ve read some of the rather naive questions on this blog I’ve often felt like saying something similar.

Hey Chris and thanks, and hello MJMy website – http://www.buildingguide.co.nz – is still up and running, though in need of some updating, but the basic information is still good and relevant. Unfortunately it wasn’t supported enough by the industry, so when I had my Vespa accident I closed down that old business and it’s been ticking over since. Might be doing something with it, though, so stay tuned…