This form is a Construction Contract that may be executed with either a cost plus or fixed fee payment arrangement. The form contains the following additional subject matters and complies with the laws of the State of California: scope of work, work site, warranty and insurance.
Costa Mesa California Construction Home Improvement Contract Cost Plus or Fixed Fee
Category:
State:
California
City:
Costa Mesa
Control #:
CA-00462
Format:
Word;
Rich Text
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Description
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How to fill out California Construction Home Improvement Contract Cost Plus Or Fixed Fee?
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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 construction contract price includes the direct project cost including field supervision expenses plus the markup imposed by contractors for general overhead expenses and profit. The factors influencing a facility price will vary by type of facility and location as well.
Fixed costs, usually established by contract agreements, are costs that do not change with production levels a company produces. A fixed cost is set over a specific period of time, and the cost estimate remains the same. A contractor will estimate how much labor and materials your construction project will need.
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.
For these reason I recommend avoiding cost-plus contracts in most cases. They simply carry too many risks for the owner and few benefits. They often lead to cost overruns and disputes over money. It's better to nail down as many costs as possible before starting the job and get a fixed bid.
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.
Cost plus percentage contract means that as the project costs increase, the fee also increases. This is not typically used because the contractor has no incentive to control costs. In fact, federal government agencies are prohibited from using this type of contract.
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.
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.
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.
