Cost Plus Fee Contract With America
Description
How to fill out California Construction Home Improvement Contract Cost Plus Or Fixed Fee?
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FAQ
In a cost-plus contract, one party agrees to reimburse the contracting party for expenses plus a specified profit proportional to the full value of the contract.
plusfixedfee contract is a costreimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract.
If the Actual Cost is higher than the Target Cost, say 1,100, the client will pay: 1,100 + 100 + (1,000 - 1,100) * 0.2 = 1,180 (contractor earns 80). If the Actual Cost is lower than the Target Cost, say 900, the client will pay: 900 + 100 + (1,000 - 900) * 0.4 = 1,040 (contractor earns 140).
A: As an example, a cost-plus contract may establish that the total estimated cost of a building project is $10 million plus a fixed fee of $1.5 million, roughly 15% of the total cost, as the contractor's profit. So the total expense to the buyer would be approximately $11.5 million ?the cost plus the fee.
One of the biggest cons is the potential for project costs to spiral out of control. Since the contractor's fee is fixed regardless of expenses, there may be little incentive to keep costs under control. Another downside is that it can be challenging to accurately estimate the total cost of a project upfront.