FROM NZCB —
Jason McClintock Group Technical Manager
Let’s be clear... Our industry has been getting creative with how we use the word margin. Traditionally, the builder would take the cost of services and materials then add on a percentage or simply place a dollar amount across the top for their profit. This is known as mark up.
However, many businesses operating in New Zealand will add a gross margin calculation on the sale price, which will give a different profit return. New Zealand Certified Builders (NZCB) members have been getting advice from different sources indicating this is how they should be applying their ‘margin’ calculation. No one way of calculation is right or wrong. However, some confusion may occur when the client receives a payment claim from the builder expecting the traditional approach of mark up, so it’s important the builder is transparent with their approach. Unfortunately, this has not been happening and creates conflict with the NZCB Building Contracts, which are all about full and frank disclosure. This is underpinned by the NZCB Code of Conduct and Ethics, which also expects members to be transparent about the way the contract price is calculated and presented to the client. This got me thinking, “Is this simply a sign of changing times?”. To find a resolution, I took quite a journey, including a member survey, speaking to construction law expert Geoff Hardy (who wrote the NZCB Building Contracts), and talking to accountants to see what the rest of the industry is doing. As a result of my findings, the Association has drawn a line in the sand and renamed the NZCB Cost and Margin contract ‘Cost and Mark Up’.
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This change allows members to operate more closely in line with the intent of the NZCB suite of building contracts. For members who wish to continue their profit calculation in another manner, that’s fine, but clearly disclose this to clients.
No one way of calculation is right or wrong... it’s important the builder is transparent with their approach. Members can find the NZCB Cost and Mark Up contracts online via the members’ only Toolshed. The online versions are the cheapest and quickest way to approach a building contract. Plus, you can send your client a draft copy to ensure all details are accurately captured before a final version is created. For help completing an NZCB online building contract, contact Georgia at the National Support Office on 0800 237 843.
Signing off for 2020 This year has been full of challenges for our members, many of which I have had the privilege of offering advice to, and assisting with pathways out of conflict. It has been a pleasure working with you all. I wish you and your family a restful time over the Christmas break and a prosperous New Year.
