Cost Plus Construction With Upset
Description
How to fill out Florida Construction Contract Cost Plus Or Fixed Fee?
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FAQ
Six Ways to Deal with Cost-Plus Contracts 1) Demand Quantity Guarantees. ... 2) Limit Increases in the Contractor's Fee. ... 3) Eliminate Budgetary Fluff. ... 4) Carefully Select the Project Team. ... 5) Demand Transparency. ... 6) Reduced Risk means a Reduced Fee.
Who pays for those mistakes? The owner doesn't want to because it's not the owner's fault. But mistakes and rework are just part of the costs. In a cost-plus contract the owner agrees to pay the costs.
Upset price. One way of establishing an upper limit while retaining the flexibility of a cost-plus arrangement is to get the contractor to agree to do the work on what is known as an ?upset price? basis. This means that you both agree to a maximum price before he begins the job. Then he proceeds on a cost-plus basis.
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.
plus fixedfee contract predetermines a contractor's exact profit for a project, regardless of the project's total cost. That means if a project's scope increases, the contractor still makes the same profit, decreasing the profit margin.