A COST-PLUS CONTRACT differs from a fixed-price contract in that it takes the actual cost of building the project and adds a fee for the builder’s overhead and management. This fee can be either a lump sum (flat fee) or a percentage of total costs. With a cost-plus contract, the Owner pays the actual costs for all labor and material, plus the builder’s and/or construction management fee.
Early on, the builder provides a cost estimate based on the available plans and information, but it’s exactly that – an estimate – until the final accounting.
A cost-plus contract can be advantageous when building larger projects with scope, specifications, and other things changing during the process. With the cost-plus basis, Owners know their actual costs on an on-going basis receive a full accounting disclosure of all costs.
Usually, doing business on a cost-plus basis puts the project Owner and the builder on the same team. A cost-plus contract provides the synergy of identifying problems and determining win/win solutions that are in the best interests of the Owner.
FOR THE PROJECT OWNER: If you trust that your builder is competent and is working on your behalf, and if you are comfortable not knowing your exact total costs until the end of the project, then a cost-plus contract may be best for you. Your final cost will depend on the changes and choices you make. Your builder will charge a smaller management fee on a cost-plus basis because he assumes less risk. CHOOSE COST-PLUS CONTRACT if you are comfortable knowing your end cost will be determined by the choices you make and you know you have a trustworthy builder. ALL TOLD, You can decide which one works best for you, Fixed price or Cost-Plus contract.
