Building collapse, page-84

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BenGrahamReborn

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28/08/22

21:50

Post #: 63371361
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Originally posted by Jazz101: ↑

it's a misconception that the only builders going under are rogues or poorly run business.

A traditional cost plus contract has its place in the industry. It can be an effective and fair way to handle suitable projects. But it can present challenges with clients who are already close to their budget or with builders who do not provide a thorough estimate have poor book keeping.

The true margin builders make is lower than the general public believe. This is confirmed by the recent bankruptcies. There is not enough buffer in the margin to cover these increases. There is also no doubt that builders can
make serious money, but the image of builders is heavily influenced by survivor bias. For every successful one, quite a few don't make it past the first three years.

What is needed is a contract that allows for material cost escalation, but puts the pressure on the builder to prove they have made a fair effort to establish the material costs at contract signing. This should be written up in the contract to a high level of detail, so it can be scrutinised if the builder has used outdated figures, in which case the full cost increase should not be passed on to the client.

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There must be a reason they can’t change the price. Raw material price fluctuations are a normal part of many businesses. Maybe if they had the capacity they’d do it all the time? Dunno
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