Cost Plus Construction Contracts

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Commonly Asked Questions about Cost Plus Construction Contracts

How does a cost-plus contract work?

A cost-plus contract is a pricing plan for a project or service. It requires the client or project owner to pay the contractor a predetermined profit margin along with the full project costs. This type of contract is the ideal choice for complex, long-term projects where the scope of work and final cost can change.

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 is a cost plus contract in construction?

A cost-plus contract is a construction agreement that requires reimbursement for project costs as well as a markup that covers the contractors overhead and profit. In other words, the name is a short-hand way of remembering what the contract covers: project costs plus contractor markup.

What type of projects are cost-plus contracts best for?

COST-PLUS CONSTRUCTION CONTRACTS. Cost-plus, or time-and-materials, contracts are often used on jobs with a lot of unknowns and hidden conditions, such as repair work. While generally used for smaller jobs, these contracts are sometimes used for large jobs as well even new homes.

What is the difference between cost-plus and TM?

The key difference between the two lies in the way a contractor factors for profit. In a TM contract, the contractor adds a markup rate to its costs. In a cost-plus contract, the contractor bills for actual costs plus a separate amount for profit, either a fixed fee or a percentage of the projects total cost.

What is a cost plus contract in Canada?

A Cost-Plus Contract is based on the cost actually paid for labour, subcontracted services, materials and other direct expenses, plus a fee to cover the contractors time managing and coordinating all aspects of the project. The fee can be either a fixed amount or a percentage of the costs.

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.