Many Cost-Plus Home Building Contracts have provisions for the builder/contractor to charge out labour costs to their client.
When preparing a Cost-Plus Residential Home Building Contract, there are several important calculations builders and contractors need to factor in when working out labour charge out rates for employees.
Remember these to avoid out of pocket expenses down the track.
Charge Out Costs to Consider
We highly recommend factoring in all the following labour costs:
- Workers Compensation Insurance
- Long Service Leave
- Other entitlements required by law specifically the: Building and Construction General On-Site Award 2010, and the employment contract.
Another way to manage charge out rates, particularly for overtime, is to include a provision to increase the employee rates when overtime hours are worked. Either that or ensure your builder’s margin, compulsory under the cost-plus contract, can absorb additional labour outlay.
Out of Pocket Risk
The biggest risk a builder faces if they do not properly calculate the charge out rates is out-of-pocket expenses. It works like this: You spend more than the rate for labour you’re entitled to claim for under the contract, you are not be paid by the builder or contractor’s client and then you cop the excess.
An Ideal Charge Out Rate Scenario
Here’s how our clients prepare their charge out rates using Small Builders Standard Home Building Contract. Firstly, the provision on charge out rates reads:
“Wages and other entitlements payable to the Builder’s employees (including wages, superannuation, worker’s compensation insurance, long service leave, redundancy and other entitlements under law) resulting from the employees’ employment relevant to the Works.
Then builder/contractor completes the template for each employee type and their relevant charge out rates. This provision allows for a flat rate to be charged for employee labour worked. Then we ask if the builder/contractor wants to include any special terms and conditions to the contract.
Here’s where we remind and allow users to increase the charge out rate when employees work overtime hours. Then these special terms and conditions and are included in the contracts’ section for the special terms and conditions.
So this is how you can cover your bases in your Cost-Plus Residential Home Building Contract and ensure your employee charge out rates don’t come out of your pocket.
Now, what else do you need to know about residential building contracts?