Maryland Construction Contract Cost Plus or Fixed Fee
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How to fill out Maryland Construction Contract Cost Plus Or Fixed Fee?
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FAQ
It takes few resources. It provides full coverage of cost and a consistent rate of return. It hedges against incomplete knowledge. It's horribly inefficient. It creates a culture of profit losing isolationism. It doesn't take into account consumers.
Advantages of Cost-Plus Contract to the Contractor: (i) There is no risk of loss arising from changing prices, wrong estimates and underestimated quotation.(ii) It provides an automatic or ready escalation clause, so that increase in cost is automatically adjusted and recovered; (iii) There is no bargaining problem.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract's full price.
In the cost plus a percentage arrangement, the contractor bills the client for his direct costs for labor, materials, and subs, plus a percentage to cover his overhead and profit. Markups might range anywhere from 10% to 25%.
Disadvantages of fixed-price Therefore the biggest issue is usually around project scope and change requests. Lack of flexibility. A fixed-price project has a defined scope (requirements). As the cost cannot change, the scope of work is much less flexible.
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.
Disadvantages of cost-plus fixed-fee contracts may include: The final, overall cost may not be very clear at the beginning of negotiations. May require additional administration or oversight of the project to ensure that the contractor is factoring in the various cost factors.
Cost-plus-fixed-fee tends to me more advantageous to the buyer as opposed to the seller as it caps the fee and the fee will not swell or grow based on the future expansion or fluctuations of the budget. However, it also can protect the seller because, in the event the budget tightens, it provides a fixed fee.