How does cost-plus pricing work in construction?

plus contract is one in which the contractor is paid for all of a project's expenses plus an additional fee for the job. The additional fee is intended to be the contractor's profit.

When should a cost-plus contract be used?

Cost-plus contracts are generally used if the party drawing up the contract has budgetary restrictions or if the overall scope of the work can't be properly estimated in advance. In construction, cost-plus contracts are drawn up so contractors can be reimbursed for almost every expense actually incurred on a project.

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Home Improvement or Remodeling Construction Contract - Cost Plus...

Kansas Home Improvement or Remodeling Construction Contract - Cost Plus Basis of Payment

Category:

Construction - Contractors

State:

Multi-State

Control #:

US-02023BG

Format:

Instant download

Description

A cost-plus contract is one in which the purchaser agrees to pay the cost of all labor and materials plus an amount for contractor overhead and profit (usually as a percentage of the labor and material cost). This type of contract is often used when the scope of the work is undermined or highly uncertain and the kinds of labor, material and equipment needed are also uncertain. It is important that the contractor maintain complete records of all time and materials spent by the contractor on the work.

This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.

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FAQ

Unlike a fixed-cost construction contract, a cost-plus construction agreement is a contract in which the owner pays the contractor the actual costs of the materials and labor plus an additional negotiated fee or percentage over that amount.

The 4 Different Types of Construction ContractsLump Sum Contract. A lump sum contract sets one determined price for all work done for the project.Unit Price Contract.Cost Plus Contract.Time and Materials Contract.

plus contract is one in which the contractor is paid for all of a project's expenses plus an additional fee for the job. The additional fee is intended to be the contractor's profit.

Cost-plus contracts are the opposite of fixed-cost projects. Cost-plus contracts refer to a contract in which a fee over the cost is provided. In a cost-plus contract, a sum payable to the contractor is not fixed; rather, it is the total cost of the contract calculated at the end 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.

Cost Plus Contract Disadvantages For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way.

Cost-plus contracts are generally used if the party drawing up the contract has budgetary restrictions or if the overall scope of the work can't be properly estimated in advance. In construction, cost-plus contracts are drawn up so contractors can be reimbursed for almost every expense actually incurred on a project.

coordinated CostPlus contract can save the Owner a lot of money. For instance, on a Fixed Price contract, if the Contractor is able to save money by finding a better material price, or using laborsaving strategies, those savings revert to the Contractor.

When the parties are proactive in the formation and negotiation of the agreement, the cost-plus contract can be a beneficial contract for both parties.

Types of contractsFixed-price contract.Cost-reimbursement contract.Cost-plus contract.Time and materials contract.Unit price contract.Bilateral contract.Unilateral contract.Implied contract.More items...?