- certainty of cost
- certainty of process
- certainty of outcome
For construction contracts, ‘certainty of cost’ means your contract should provide certainty covering a wide-range of cost topics such as:
- the initial (agreed) price
- the scope of works that relate to that initial cost
- whether the price is being paid at completion or in instalments
- the period between any instalments
- the period from invoice to payment
- the amount of back-up information to be provided with each invoice
- the process to give the client prior warning about extra costs
- who decides the amount of any extra costs
- regular updates on the final cost.
These are all covered in my ‘cost happiness quiz’ for home-owners considering developments [available here].
While for experienced members of any industry or sector, much of what happens on a project is process-driven (or normal practice), for clients this may not be true.
Clients who have never done a project before need much more assistance in understanding the process. This is enhanced when the tasks they need to do are set out in chronological order. For example, insurance, party wall approvals and permissions are needed before the works start. Certain processes continue throughout the project. After completion, the focus is on documents and defects.
Certainty of process means your contracts should:
- separately set out the tasks and duties for which each party is responsible
- explain the payment process clearly
- provide processes to change the requirements relating to time and cost (ideally agreed amicably)
- describe remedies that the client has for late completion or defective work.
Your contract should be very clear that the initial time and cost set out in your contract can (and probably will) change. It cannot guarantee those objectives will be met, which may disturb the client’s peace of mind.
Your contract should also deal with any assumptions your client has about its requirements on time and cost – which can very easily become fixed and guaranteed in their mind.
In my FMB contracts, for example, we clearly state that on page 1 that the completion date may be extended (and the contract includes a timeline to show how it may change) and the price may increase or decrease. We want to ensure clients understand this before the project starts, and before it becomes fixed.
Your contract should:
- set the initial time, cost and quality requirements
- provide processes to allow time and cost to change during the project
- set out the client’s remedy if the goods, works or services do not meet the agreed quality requirements
- ensure there is good clear regular communication so that the outcomes are not a surprise – as the project progresses, the client gets certainty about the new outcomes.
What should you do?
Focus on ensuring your contract creates certainty of cost, process and outcome from the client perspective.