To maintain the common portions of the co-ownership and ensure the preservation of the immovable, it is necessary for the syndicate to subscribe to a certain number of maintenance or construction contracts. As the representative of the syndicate of co-owners, it is the board of directors that generally has the power to subscribe to all the contracts of the co-ownership. To manage costs and determine the obligations of each, it is essential for directors to distinguish the main types of contracts. This fact sheet provides an update on the most common contracts in this area, namely the lump sum contract, the cost-plus contract and the flat-rate unit price contract.
Lump sum contract
A lump sum contract, also known as a fixed-price contract, is defined as a contract of enterprise by which a contractor undertakes to provide his client with a work or service, according to a fixed price determined in advance and globally, for works or services whose nature and consistency are precisely defined. The customer undertakes in return to pay the agreed price. The lump sum contract regime is based on article 2109 of the Civil Code of Quebec, which provides that: Where the price is fixed by the contract, the client shall pay the price agreed, and may not claim a reduction of the price on the ground that the work or service required less effort or cost less than had been foreseen. Similarly, the contractor or the provider of services may not claim an increase of the price for the opposite reason. Unless otherwise agreed by the parties, the price fixed by the contract remains unchanged notwithstanding any modification of the original terms and conditions of performance.
The risks of price increases or decreases due to the circumstances encountered are thus reduced. However, the price of a fixed contract can sometimes change when the parties have concluded a so-called "relative" fixed-price contract. In the latter case, the contract will include clauses to modify the plans and specifications of the contract or to frame the adjustment of the price if unforeseen events had to occur. The syndicate could thus reserve the right to request additional work or modifications, either by means of an early cost determination clause and, in the event of disagreement, a dispute resolution mechanism provided for in the contract, or failing that, under the law. An example of a fixed-price contract for construction projects is the Canadian Construction Documents Committee CCDC 2 – 2008 Stipulated Price Contract.
The lump sum contract has an undeniable advantage for a syndicate of co-owners: the costs of executing the project are predictable. Any excess of the price, for additional work is excluded, unless the prior, express and written agreement of the syndicate as to the principle and cost is obtained. This is all the more important in times of labour shortages and difficulties in the supply of materials. In addition, the determined price includes all the work necessary for the realization of the work, thereby limiting the "unpleasant surprises" discovered during the construction site. However, this type of contract has a disadvantage for a syndicate, namely that of its higher cost. Since the fixed-price contract represents more risk for the contractor, he will want the price to reflect this risk-taking. For example, if the contractor misjudges the construction schedule or underestimates the cost, it is he who will have to absorb the impact of costs and delays.
For complex services, with significant technical hazards on which there is very little hindsight, the parties can agree on a cost-plus contract. In this type of service contract, the contractor or a service provider undertakes to provide a service for a fee equal to the costs paid (cost) for labour, subcontracted services, materials and other direct expenses, plus an amount to cover the time spent by the contractor or service provider for the management and coordination of all aspects of the project. The syndicate of co-owners undertakes in return to reimburse the contractor for all actual costs of labour and materials at cost to which it adds a predetermined percentage or fee, used to cover the contractor's general expenses and profit. The parties may provide for a ceiling price and thus conclude a contract at increased cost price or in construction management at a guaranteed maximum price. The basis of the cost-plus contract regime is article 2108 of the Civil Code of Quebec. An example of this type of contract for construction projects is the Canadian Construction Documents Committee (CCDC) Model Contract CCDC 3 – 1998 Cost Plus Contract.
The cost-plus contract has an advantage for a syndicate of co-owners: obtaining the services of a reliable service provider or contractor offering quality services. In addition, by choosing this option, the syndicate will pay the right price and it will be able to control more precisely the different stages of the work. In short, the provider or entrepreneur does not have to randomly inflate his price to cope with the unexpected. This approach can even lead to savings during the project. However, such a contract has significant disadvantages for a syndicate. The total cost of the work is only known at the end of the project. In addition, the syndicate takes more financial risks and overspending than with a lump sum contract.
Flat-rate unit price contract
In co-ownership, certain types of services or works are better suited to establishing a cost on the basis of a unit price (quantity, day, hour, etc.). The flat-rate unit price contract is defined as a contract by which a contractor or a service provider undertakes to provide a service for a fixed price per unit of work. The total price will be determined by multiplying the quantities actually carried out or supplied by the agreed unit price and according to the work actually carried out. For example, a painter may agree with the syndicate that the cost of repainting the four exterior staircases will be charged by the hour or by the quantity, i.e. a fixed price per staircase ($/staircase). Although the total amount is not initially known, it should be noted that the unit price has a flat-rate aspect in that it includes, for a work unit, all the burdens on the contractor, and cannot be modified (except for an amendment). In this configuration, the overall cost depends on an estimate and hazards related to the construction, but is more accurate in the end. The unit price contract has an undeniable advantage for a syndicate of co-owners: the costs of execution of the project are easily adjustable in the event of a modification. This type of contract requires less estimation and is more equitable when the time to be devoted to a work is difficult to predict. However, the unit price contract has a disadvantage for a syndicate, namely that the actual cost of the work is not known until the end of the project.
WHAT YOU SHOULD KNOW ! A syndicate of co-owners has every interest in using a lump sum contract when its objective is to agree on the overall price and limit the financial risks inherent in a construction project. You should know that directors and co-owners generally have a low tolerance to risk.
WHAT TO KEEP IN MIND : For a contract to be legally qualified as a " lump sum contract", it is still necessary that the nature and consistency of the work to be carried out or the service required are clearly defined, that the price initially planned is invariable. Therefore, it is required to provide a detailed breakdown of the services or works included in this contract. This will make it easier to determine price adjustments in the event of legitimate changes during the execution.
WARNING ! n the context of negotiations, the parties are free to decide whether or not they wish to change the agreed price following for example the completion of additional work. Remember that any change in the initial prices provided for in a contract upsets the economic balance of the parties. If this is their wish, the contract must imperatively contain revision clauses.