Administering contracts

Contract administration involves managing your contracts to make sure you comply with and fulfill the contract conditions. Good contract administration ensures customer satisfaction and minimises disputes.

Master Builders has developed a range of resources to help with the administration process, including:

Cost adjustment guidelines (commercial)

Rising costs in labour and building materials make it difficult to price building work. There's a risk that, during the course of a contract, the costs will rise or fall from the costs initially estimated. Generally, this risk can't be controlled.

To overcome this, contractors may end up pricing tenders conservatively or guess the effects of changes in costs.

To explain it even further, we've produced guidelines to explain cost adjustment, and provide sample cost adjustment provisions for inclusion in contracts where required.

Cost adjustment guidelines

Cost adjustment provisions in contracts address this risk by providing mechanisms for adjusting contract payment to reflect changes in costs, and apply to long-term costs and some specific costs. So, contractors retain the risk of short-term fluctuations in costs, and the risk of the calculated cost adjustment not reflecting actual changes in costs.

Applicable items

Cost adjustment may be applied to the following:

  • Labour and materials
  • Currency exchange rates for goods purchased in foreign currency
  • Other costs, including duties and taxes or shipping and transport.

In normal contracting strategies, cost adjustment provisions should only be applicable to costs, typically long-term costs that might cause tenderers to overestimate or uneconomically underestimate contract prices.

Considerations

For consistency, you should consider the following for all contracts:

  • Cost adjustment for labour and material may not normally apply in construction contracts less than 52 weeks in duration, and desirably should apply in contracts greater than 52 weeks duration.
  • Cost adjustment may be provided in construction contracts of less than 52 weeks duration in special circumstances, for example if the contract involves substantial materials or plant incorporating price sensitive metals or minerals, such as steel or copper.
  • Cost adjustment provisions for labour and materials may be based on the Australian Bureau of Statistics (ABS) indexes.
  • Separate provisions are required for adjustment to take account of changes in foreign exchange rate, customs duty, sales tax, ocean freight, marine insurance, overseas labour, and materials indexes.
  • The total proportion of the amounts payable under the contract with is subject to cost adjustment should be limited to 90%, the remaining 10%, representing profit and overheads, being fixed.

Note: A table showing the appropriate ABS indexes and proportions for labour and materials for selected common categories of work is included in the guidelines at Appendix A. Sample copies of ABS indexes for labour and materials are shown at Appendix F.

Home Warranty Scheme

All Queensland Building and Construction Commission (QBCC) licensees who perform residential work over $3,300 must take out cover under the Queensland Home Warranty Scheme when working directly for consumers.

Any QBCC licensee (builder/trade contractor), not just house builders, who carry out work directly for a residential consumer, must pay a home warranty premium. The only exceptions are licensees working as subcontractors for a principal contractor, or working for a person who holds an owner-builder permit for the relevant construction.

If you enter into a contract with your pool builder, your contractor will have to pay compulsory Home Warranty Insurance. This insurance provides home owners with cover for loss where the licensed contractor does not complete the contracted works or fails to rectify defective work.

Read more about how to handle the GST component of insurance premiums on the QBCC's website.

The following are examples of when an insurance premium should be paid for residential work with a value of work in excess of $3,300, performed on a home or unit of less than three storeys:

Builders

  • Builders Low Rise, Medium Rise and Open
  • Builders Restricted to Kitchen, Bathroom and Laundry
  • Builders Restricted to Structural Landscaping

Tradies

  • Bricklaying and Blocklaying
  • Carpentry
  • Concreting
  • Glass, Glazing and Aluminium
  • Plastering Drywall
  • Plumbing and Draining
  • Roof Tiling
  • Structural Landscaping (Trade)
  • Cabinet Making
  • Foundation Work (Piling and Anchors)
  • Joinery
  • Structural Metal Fabrication and Erection
  • Metal Fascias and Gutters
  • Roof and Wall Cladding
  • Sheds, Carports and Garages
  • Waterproofing
  • Steel Fixing
  • Stone Masonry.

Variations

Variations to the scope of the works under residential contracts may lead to an increase in the contract price. If the accumulative values of variations increase the contract price by $5,000 or more the contractor will have to pay an additional insurance premium. The contractor should make provision in the pricing of the variations for the addition premium.

To find out if your job should be covered, read the information about Insurable Residential Construction Work on the QBCC's website or call the QBCC on 1300 27 22 72.

Need more information?

If you haven’t found the answer to your questions on our website, give us a call or email us.

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