A Construction Contract for Home - Fixed Fee or Cost Plus is a legally binding agreement between a Contractor and an Owner for the construction of a residential property. Under this type of contract, the payment structure is specified as either a fixed fee, where a set price is agreed upon for the entire project, or cost-plus, where the Owner agrees to pay the actual costs incurred by the Contractor along with an additional fee. This document outlines the scope of work, responsibilities, and payment terms to protect both parties throughout the construction process.
This form is ideal for homeowners looking to build, renovate, or expand their residence. It is also suited for Contractors who are seeking a formal agreement on the terms of their services. Individuals without prior legal experience will find this contract beneficial as it clearly defines both parties' obligations and expectations, reducing the potential for misunderstandings during the construction process.
The Construction Contract includes several key components:
These components ensure that all expectations are clearly communicated and legally enforceable.
To properly complete the Construction Contract, follow these steps:
Consult a licensed attorney if unsure about any section to ensure full understanding and compliance.
When filling out the Construction Contract, be cautious of these common mistakes:
Taking the time to carefully review each section of the contract can help prevent these errors and ensure a smoother construction process.
In addition to the Construction Contract, you may need the following documents:
Gathering these documents will help to ensure a complete and enforceable construction agreement.
The main difference in a cost-plus versus a fixed price contract is the budget. Cost-plus contracts have no set spending limit, the contractor purchases the materials and receives reimbursement plus a fee. Fixed-pricing sets a specific dollar amount for a project.
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 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.
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%.