Cost Plus Contracts – Avoid
What Is A Cost Plus Contract
Basically it is a contract where you agree to pay all the builders ‘Direct Costs’ plus a ‘Fee for Administration and Profit’.
Rather than a quotation the builder provides an estimate with the actual cost being determined at the completion.
These type of contract are only supposed to be used when it is difficult for a builder to accurately price a job, or the client wants to keep making changes during the construction.
Most building professionals find managing ‘Cost Plus Contracts’ extremely difficult. They are not for the amateur!
The Problems
If the builder hasn’t the expertise to provide an accurate quotation will he have the expertise to manage the contract in a timely and economical manner?
There is no pressure on the builder to work in an efficient way, or select cost effective materials. The more money they spend the bigger their fee.
Who is going to evaluate and, check the builders costs?
Without constant monitoring you will be paying for all the Builders mistakes!
You might have a budget but with the contract requiring you to pay whatever it costs, plus the fee, its easy to blow the budget . . . By a long way.
If a Builder Suggests A Cost Plus Contract
Unless you can:
- Really trust the builder, and
- Pay for a full time project manager,and
- Afford major cost overruns.
STOP and re-think your strategy.
This could be to either seek out builders who are able to give you a quotation, or get your designer to break the work down into more basic packages that can be individually quoted.
See Contracts for more posts