Cost Plus Construction Agreement Template for New Zealand

A Cost Plus Construction Agreement provides a flexible pricing structure for construction projects where traditional fixed-price contracts may not be practical or fair to either party. Under this arrangement, you pay for the actual costs of construction plus an agreed percentage or fee for the contractor's overhead and profit. This approach offers transparency in project costs while sharing risks between you and your contractor.

When do you need this document?

You'll need a Cost Plus Construction Agreement when project scope is uncertain or likely to change significantly during construction. This commonly occurs in heritage building renovations where hidden structural issues may emerge, emergency repair works following natural disasters, or complex commercial projects with evolving design requirements. The agreement is also valuable when you need to fast-track a project and cannot wait for detailed cost estimates, or when working with innovative construction methods where material and labor costs are difficult to predict accurately.

Key legal considerations

Your agreement must clearly define what constitutes reimbursable costs versus contractor overhead to avoid disputes. Direct costs typically include materials, labor, equipment, and subcontractor fees, while overhead covers office expenses, insurance, and management costs. The markup percentage or fee structure should be explicitly stated, along with cost verification procedures and documentation requirements. You should include provisions for cost auditing rights, maximum project limits, and change order procedures. Risk allocation clauses are crucial, particularly regarding cost overruns, delays, and variations. The agreement should also address intellectual property rights, especially in design-build scenarios, and establish clear termination procedures including payment for work completed.

Legal requirements in New Zealand

Under the Construction Contracts Act 2002, your agreement must include specific payment provisions, including payment schedules, dispute resolution procedures, and remedies for payment defaults. The Building Act 2004 requires compliance with building consent processes and building code requirements, which must be reflected in your scope of works. Health and Safety at Work Act 2015 obligations must be clearly allocated between parties, with the principal often retaining significant duties as a person conducting a business or undertaking (PCBU). The Fair Trading Act 1986 requires honest representation of costs and capabilities, while the Contract and Commercial Law Act 2017 provides the general contractual framework. Your agreement should include retention provisions, defects liability periods, and insurance requirements that comply with New Zealand standards. Additionally, ensure proper dispute resolution mechanisms are in place, as required under construction-specific legislation.