Cost Plus Construction Agreements

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Commonly Asked Questions about Cost Plus Construction Agreements

How do you protect yourself in a cost-plus contract?

Here are six practice tips that can help an owner protect themselves from the risk posed by a Cost-Plus contract: 1) Demand Quantity Guarantees. 2) Limit Increases in the Contractors Fee. 3) Eliminate Budgetary Fluff. 4) Carefully Select the Project Team. 5) Demand Transparency. 6) Reduced Risk means a Reduced Fee.

What are the disadvantages of a cost-plus contract?

Cons of cost plus a percentage of cost in a contract This type of contract doesnt address the final cost, which can shift the risk onto the client. It may be harder to adhere to a budget because the final cost is unknown when they sign the contract.

What are the advantages of a cost-plus contract?

Fast-Paced Projects: For projects with tight timelines, a cost-plus contract allows for quicker decision-making and streamlined change order processes. Complex Projects: Highly intricate projects with unforeseen challenges might benefit from the adaptability of this contract.

What are the rules for cost-plus?

If you use a cost plus contract, you must give a fair and reasonable estimate of the total amount of money you are likely to receive under the contract at the time the contract is signed. You should be careful that the estimate is not a representation of the final contract price.

What is a simple example of a cost-plus contract?

Examples of Cost-Plus Contracts A project is expected to cost $50,000 in materials and labor. The contract states that the customer pays a 10% fee on the final project cost. If the actual cost of the project is $56,250, then the project fee would be $5,625.

What is a cost-plus contract in construction?

What Is a Cost-Plus Contract in Construction? A cost-plus contract asks the customer to pay the total project costs plus an additional fee for the contractors overhead and profits. This extra expense can be listed as a flat rate or a percentage of the total project depending on the contractors business model.

What is the margin on a cost-plus contract?

For cost-plus contracts (where the client agrees to pay all costs, plus a specific percentage margin to the builder), a common practice is costs plus 15 to 20 per cent margin, although there are some contracts which include a margin as small as 5 per cent. The builders margin may also be a fixed amount.