Cost Plus Contract Template With Guaranteed Maximum Price
Definition and meaning
A cost-plus contract template with guaranteed maximum price (GMP) is a legal document outlining a construction agreement where the client pays the contractor for actual project costs plus a fee, but the total cost is capped at an agreed level. This contract structure is advantageous for projects with uncertain scopes by providing cost certainty for the client while allowing flexibility for the contractor to manage the job without the risk of exceeding a predetermined budget.
Key components of the form
The cost-plus contract template typically includes several essential sections:
- Contractor's Fee: Defines the contractor's fee structure, often based on a percentage of the work's actual cost.
- Guaranteed Maximum Price (GMP): Establishes the maximum amount the client is obligated to pay for the project.
- Cost of Work: Specifies which costs are considered direct costs, including labor, materials, and subcontractor expenses.
- Change Orders: Outlines the process to modify the contract for adjustments in scope or costs.
- Contingency: Flexibility in budgeting for unforeseen events or costs that may arise during the project.
Who should use this form
This cost-plus contract template is beneficial for clients and contractors involved in complex construction projects where the full scope is not clearly defined at the outset. It is especially useful for homeowners, real estate developers, and contractors looking for a transparent payment structure that accounts for variable costs while limiting total expense liability.
Legal use and context
Cost-plus contracts with a GMP are widely utilized in construction and engineering sectors, where projects often face unforeseen challenges. The legal context of these contracts mandates the precise definition of what constitutes 'cost' to mitigate disputes between stakeholders. It is crucial to comply with local laws and regulations when drafting and executing these agreements to ensure enforceability.
Benefits of using this form online
Utilizing an online template for a cost-plus contract with guaranteed maximum price offers several advantages:
- Access to professionally drafted templates that reduce legal risks.
- Time-saving capabilities to fill out, customize, and download documents instantly.
- Easy updates and revisions to the contract based on changing project needs.
- Immediate legal updates reflecting the latest laws and regulations, ensuring compliance.
Common mistakes to avoid when using this form
When using a cost-plus contract template, it is crucial to avoid the following common errors:
- Failing to clearly define the types of costs included in the 'cost of work.'
- Neglecting to specify the process for change orders and how they affect the GMP.
- Not documenting the agreed-upon payment schedule, leading to misunderstandings about payment timing.
- Overlooking the necessary legal requirements specific to the jurisdiction where the work will take place.
How to fill out Florida Construction Contract Cost Plus Or Fixed Fee?
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FAQ
Unlike a lump sum contract wherein a contractor is paid a flat fee for the work, the guaranteed maximum price contract allows the owner to potentially save money if the project ends up costing less than estimated.
A stipulated sum contract, also called a lump sum or fixed price contract, is the most basic form of agreement between a contractor and owner.
Guaranteed Maximum Price (GMP or GMAX) contract means a cost-plus agreement with a cap on the owner's total liability for the costs of construction of the project, also considered the not to exceed price by the Owner.
The guaranteed maximum price is the most a contractor can bill a customer for a project. Also known as "not-to-exceed price" contracts, these agreements require customers to compensate contractors for their direct costs and a fixed fee for overhead and profit, but only to a certain threshold.
Cost-Plus GMP Contract Agreements are cost reimbursement contracts. In a Cost-Plus price arrangement, there is no set or Fixed Fee. In other words, the contractor is paid for the Cost of the Work it incurs to complete the project, plus a Fee, not-to-exceed the GMP (absent scope changes or extenuating circumstances).
