Skip to main content

Fixed price building contracts have long been a popular choice for both builders and clients in the building industry. These contracts establish a predetermined price for the construction project and provide stability and predictability to all parties involved. However, it is important to recognize that fixed price contracts are not without their risks that can give rise to lengthy and expensive litigation.

  1. Inadequate Project Scope Definition:

One of the key risks associated with fixed price contracts is the potential for inadequacies in the scope of the proposed project. It is always important to ensure that the scope of the project is clearly defined and considers the chance of unforeseen hidden conditions.

  1. Variations:

Variations are another significant risk in fixed price building contracts. Construction projects are inherently dynamic, and changes are often necessary due to design modifications, unforeseen site conditions, or client requests. It is important to ensure the contract includes mechanisms to address changes to the work to be undertaken.

  1. Uncertainty in Pricing:

Fixed price contracts require accurate cost estimation upfront, leaving little room for error or unforeseen circumstances. However, market conditions, fluctuating material prices, and labour shortages can impact the actual cost of construction. The effects of COVID-19 on the building industry is a great example of this.

  1. Quality vs. Cost Trade-off:

In fixed price contracts, the focus is often on cost control rather than quality. Builders may be incentivized to complete the project quickly and within budget, potentially compromising the quality of workmanship or materials used.

While fixed price building contracts come with inherent risks, they can be overcome by taking measures to ensure that the above risks are mitigated:

It is crucial for all parties involved to recognize and address these risks proactively through careful project scoping, effective change management, and a collaborative approach. By acknowledging the challenges and taking appropriate measures, the potential pitfalls of fixed price contracts can be mitigated, leading to successful project delivery and client satisfaction.

 

Contact Kym Chapman on 0416102577  to discuss ways to manage the risks on your next building project.