What does reasonably foreseeable mean in terms of contract costings?
In construction contracts, the term "reasonably foreseeable" is often used to describe events or costs that could have been predicted by a reasonable person. This blog post explores what reasonably foreseeable means in terms of contract costings and how it can impact the construction process.
The term "reasonably foreseeable" refers to the costs that a reasonably competent builder could have anticipated when preparing the contract.
This means that if a cost could have been reasonably predicted or anticipated, the builder should have considered it and included it in the contract.
If the builder failed to include a reasonably foreseeable cost at the time of contract preparation, the client may not be liable for the cost, and the builder may be obligated to cover the additional expense.
The builder, on the other hand, may argue that the cost was not reasonably predictable or that the client was aware of the potential cost and accepted the risk.
In general, it is the builder's responsibility to assess the project requirements, scope of work, potential risks, and costs.
In the contract, the builder should account for all relevant factors and make reasonable allowances for foreseeable costs.
Here are five potentially foreseeable costs that a builder should be aware of but may overlook due to incompetence.
1. COSTS OF SITE PREPARATION
Before starting construction, the builder must assess the site's condition and determine whether any excavation (cut & filling), levelling, or other preparation work is required.
The cost of site preparation can vary greatly depending on the condition and location of the site, and builders may overlook or underestimate these costs if a thorough site assessment (and sufficient boreholes with a soil test) is not performed.
2. UNEXPECTED SITE CONDITIONS
Builders must be prepared to deal with unexpected site conditions such as difficult-to-excavate soil or rock or unstable ground that necessitates additional foundation reinforcement.
These conditions can significantly increase project costs, and builders who fail to conduct a thorough site assessment may overlook or underestimate the possibility of unexpected site conditions.
3. BUILDING PERMITS AND FEES
Builders are required to obtain ALL of the necessary permits (unless specifically excluded in the contract) and pay fees for the construction project, which includes building permits, compliance permits, and environmental permits.
The cost of these permits and fees varies according to the location and scope of the project, and builders who are inexperienced or unfamiliar with local regulations may overlook or underestimate these costs.
4. MATERIAL COSTS
Builders must purchase all construction materials, such as timber, concrete, steel, and other building supplies. These materials' costs can vary depending on market conditions, and builders who fail to negotiate favourable prices or lock pricing in for sufficient periods of time with suppliers may underestimate these costs and attempt to pass them through to you.
5. LABOUR COSTS
Builders must pay for all construction labour, including skilled and unskilled labour, supervisors, and construction managers. Labour costs vary depending on location, project scope, and market conditions, and builders who do not have a regular or loyal trade base may be at risk of fluctuating labour availability and costs.
In summary, "reasonably foreseeable" costs are those that a reasonably competent builder should have anticipated when preparing the contract.
Builders have the responsibility (as "experts") to assess project requirements, scope of work, potential risks, and project costs, and should consider all relevant factors and make reasonable allowances for foreseeable costs in the contract.
If the builder fails to include a reasonably foreseeable cost, the client may not be held liable for the cost, and the builder may be held liable for the additional expense.
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