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.
Los Angeles California Construction Home Improvement Contract Cost Plus or Fixed Fee
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State:
California
County:
Los Angeles
Control #:
CA-00462
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FAQ
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.
8 Things Every Remodeling Contract Should Have Scope of Work, Selection Sheet and Drawings.License Number and Insurance.Description of Change Orders.Warranty information.Subcontractor Agreements.Payment schedule.Completion Schedule / Timeline.Clauses Required by Law.
Expenses may also include overhead, like research and development costs necessary to meet contractual goals. However, estimating errors, mistakes and costs incurred due to negligence are not covered in most cost-plus contracts. In some cases, the customer may request a cap on total chargeable expenses.
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.
Cost-plus contracts are majorly found in the construction industry where the contractor is reimbursed the number of expenditures made for the contract and fixed percentage fees of the contract cost as the profit made on the contract.
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.
The contract should describe, in detail, the products to be used and how the work will be performed, i.e., size, color, who will be doing what work, amounts of materials provided, manufacturer model number, etc. There must be a detailed, written payment schedule in 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.
Types Cost plus fixed-fee (CPFF) contracts pay costs plus a pre-determined fee that was agreed upon at the time of contract formation. Cost-plus-incentive fee (CPIF) contracts have a larger fee awarded for contracts which meet or exceed certain performance goals, for example being on schedule and any cost savings.
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.