Wisconsin Construction Contract for Home - Fixed Fee or Cost Plus

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Multi-State
Control #:
US-00462
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Word; 
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Description

This form is a Construction Contract. The form contains the following subjects: scope of work, work site, and insurance. The contractor's warranty is limited to defects in workmanship within the scope of the work performed by the contractor.


What is a Construction contract agreement?


If you’re planning to build, renovate or reconstruct your house, you will need to enter into a contract for home construction with the building contractor, defining your mutual rights and responsibilities. This agreement contains project specifics, the contractor’s license and insurance details, the requested scope of work, etc. It may also determine the potential lien on the property should the work not be paid in full.


Types of construction contracts


Depending on the payment arrangements determined by parties, there are four basic types of home builders’ contracts:


1. Fixed price (or lump-sum) agreements set the price for the completed job right from the start. Although fixed, the document may also include provisions defining penalties (for example, if the constructor fails to finish the work on schedule).


2. Cost plus construction agreements set the price for the finished work based on building materials and labor with additionally mentioned “plus” (a percentage of the total costs or a fixed fee).


3. Time and material agreements set the price for the work without a “plus,” but the client pays the contractor a daily or hourly rate while they are under contract.


4. Unit-price agreements are standard in bidding, particularly for federal building projects. Both owner and contractor define the price that the contractor charges for a standard unit without any specific extra fees for other units.


The first two types of contract for home construction mentioned are the most popular ones. Let’s take a closer look at them.


Fixed price vs. cost-plus contract benefits


The fixed price agreement benefits owners more than builders, as it determines at the moment the parties seal the deal the exact price the contractor will get after they complete all the work. Builders risk not getting the estimated profits they initially anticipated, as expenses may increase significantly but remain the constructor’s responsibility.


The cost-plus construction deal contains the evaluation of the final project cost; however, it doesn’t determine the final contract price until the contractor completes all the work. Unlike the fixed-price agreement, it separates expenses and sets the profit rate (as a percentage of the final project cost or as a flat amount), so contractors prefer this type of agreement; it is riskier for homeowners.


Information you should provide in the construction contract agreement


The presented Construction Contract for Home is a universal multi-state construction contract template. This sample describes typical terms for a home building contract. Download a printable document version from our website or amend and fill it out online. Make sure to provide the following information:


• Name and contact details of the contractor and their license number;


• Name and contact details of the homeowner;


• Property legal description from county clerk’s records;


• Project description with blueprints and building specifications;


• Scope, description of work, and its estimated final dates;


• Costs of work and responsibilities of parties for any breach of contract.

In Wisconsin, a construction contract for home refers to an agreement between a homeowner and a contractor for the construction or renovation of a residential property. There are two primary types of construction contracts used in Wisconsin — Fixed Fee and Cost Plus. Fixed Fee Contract: A Fixed Fee contract, also known as a lump-sum contract, is a popular choice in residential construction projects. In this type of contract, the contractor agrees to complete the project for a predetermined fixed amount. The total cost of the project is specified in the contract and includes both the contractor's fees and any material or labor costs. The homeowner agrees to pay the fixed amount regardless of any fluctuations in material prices or unforeseen circumstances during the construction process. Cost Plus Contract: A Cost Plus contract, also referred to as a cost reimbursement contract, is an alternative to the Fixed Fee contract. In this arrangement, the homeowner agrees to reimburse the contractor for the actual costs incurred throughout the construction process, along with an additional fee or percentage for the contractor's services. The contract typically outlines specific categories of costs, such as materials, labor, permits, and any other related expenses. The homeowner has more visibility into the project's costs and pays a fee on top of the total expenses. It's important to note that within these two primary types of contracts, there may be variations or modifications based on the specific requirements of the project. For example, the Fixed Fee contract can include provisions for change orders or additional work requested by the homeowner, which may incur extra charges. Similarly, a Cost Plus contract can have different fee structures, such as a fixed fee percentage or a negotiated fee based on estimated costs. Regardless of the type of contract chosen, it is essential to have a comprehensive written agreement that clearly defines the scope of work, the materials to be used, project timelines, payment terms, and any other pertinent details. The contract should also include clauses addressing dispute resolution, warranties, and any legal obligations imposed by Wisconsin construction laws. In conclusion, Wisconsin construction contracts for home construction offer the choice between Fixed Fee and Cost Plus arrangements. Homeowners should consider factors such as project complexity, potential changes, and their comfort level with cost uncertainty when selecting the appropriate contract type for their residential construction project. It is advisable to consult with an attorney or legal professional experienced in construction law to draft or review the contract to ensure all legal requirements are met and the homeowner's interests are protected.

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FAQ

Under a fixed price contract, there is the risk that the costs will be greater than the price and thus the contractor will take a loss. For the buyer, the cost plus contract offers a better product since the contractor has no incentive to cut costs on lower end materials.

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.

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.

In a cost-plus contract, the profit is calculated separately before construction and written into the contract as an additional fee. A fixed-price contract establishes a single lump sum cost for a construction project upfront.

They make budget estimates difficult: Cost-plus contracts are best suited for projects with flexible budgets. As you can imagine, the cost of supplies and materials is constantly fluctuating. This means contractors might have to pay more for something than they initially anticipated in order to do the job well.

Cost Plus Contract AdvantagesHigher quality since the contractor has incentive to use the best labor and materials. Less chance of having the project overbid. Often less expensive than a fixed-price contract since contractors don't need to charge a higher price to cover the risk of a higher materials cost than

Fixed-price contracts tend to be best suited for when a project's scope can be clearly determined upfront, and the costs of the materials and labor needed to meet the contract's terms can be estimated with reasonable certainty.

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.

A cost plus arrangement is better for homeowners who are less concerned with budget and more motivated by the builders reputation. They are comfortable with more unknowns about the construction of their house.

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Wisconsin Construction Contract for Home - Fixed Fee or Cost Plus