Cost Plus Building Contract With Contractor
Description
How to fill out Construction Contract For Home - Fixed Fee Or Cost Plus?
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FAQ
Percentage of cost: The contractor receives a markup equal to a certain percentage of the total project cost. This percentage fee can vary across projects and industries, but it's typically set between 5 and 25 percent. Fixed fee: The contractor receives a flat fee that's determined during contract formation.
Cost-plus incentive fee contracts happen when the contractor is given a fee if their performance meets or exceeds expectations. Cost-plus percent-of-cost contracts allow the amount of reimbursement to rise if the contractor's costs rise.
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 Contractor's Fee. ... 3) Eliminate Budgetary Fluff. ... 4) Carefully Select the Project Team. ... 5) Demand Transparency. ... 6) Reduced Risk means a Reduced Fee.
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 largest concerns for the owner in a cost-plus agreement is the potential for uncapped cost overruns and unanticipated costs.