At what time it is impossible or hard to guess the complete cost of a remodeling or construction project in advance, you might need to work on a cost-plus contract together with the contractor. Cost-plus contract is a substitute to lump sum or fixed – price contracts that enable more transparency and greater flexibility for the possessor of a property. However, risk is abridged for the contractor, since a cost-plus contract assures a profit.
In a cost-plus contract for a construction project, the purchaser concurs to face the real expenditures of the project. These costs consist of materials and labor, as well as other costs sustained to finish the work. The “bonus” part denotes a flat price agreed upon beforehand that covers the profit and overhead of a contractor.
In general cost-plus contracts give complete permission to the purchaser to check accurately what the operating costs are. A number of cost-plus contracts consist of a definite highest price.
Considerations
In general, owner has a preference to cost-plus contracts in case they wish for the elasticity to make variations with the progression of a project. In case you or your trade does not have enough experience in the construction projects or else you are running on a limited budget, then you might be more affluent with a fixed price, because there is inevitable doubt regarding the final outlay of a project valued on the basis of cost-plus. But eventually, cost-plus-contract gives a win-win position for the contractor since it covers all the risks.
Cost-plus contract.
Agreement, made _________[date], between _________ of _________, referred to as contractor, and ____________________ of _________, referred to as owner.
1. Owner agrees to employ contractor in the erection of a building, as described below, under the following conditions and terms.
2. Contractor agrees to furnish complete plans and specifications, hire all labor and buy all material and make contracts for such departments of the work as are necessary to handle in that manner. Contractor also agrees to furnish a competent superintendent to oversee all work and inspect all material, to insure obedience to the specifications, look after paying all bills of every kind and nature in connection with the work, and obtain waivers of lien from all material companies and subcontractors.
3. Contractor estimates the cost of the building, including their own services, in advance of making the complete plans and specifications, will not exceed $_____ and should the final figures, obtained after making plans and specifications, exceed the above estimate either party shall have the right to cancel this contract.
4. It is agreed that the actual cost of the building shall be on the basis of the cost of material and labor and the amounts paid subcontractors, to which shall be added _________ percent for the overhead expense incurred by contractor and _________ percent to cover the services of contractor. If these total figures shall exceed the above estimate the excess shall be paid by contractor, and if they are less than the above figures, owner shall have the benefit. Should any changes be made, after the contract has been signed, which increase the cost, the guaranteed figures as stated above, shall automatically be increased accordingly.
5. Owner agrees to cooperate with contractor and pay any costs that may be necessary in the financing of the building, and to pay contractor for the construction of the building in the following manner:
_________ percent when the foundation walls are complete.
_________ percent when the roof is on.
_________ percent when the plumbing and heating is roughed in.
_________ percent when the interior finish is complete.
Balance when all work is completed.
