Cost-plus fixed fee: With this contract, project managers cover both direct and indirect costs and pay a fixed fee to the contractor that's pre-determined by both parties. Cost-plus incentive fee: Project managers base these fees on how well the contractor performs.
Cost-plus-fee is advantageous to the seller because it allows for some baseline costs and expenditures to be reimbursed in a more guaranteed way, but also allows for the opportunity to modify fees based on percentages. As such, as budgets swell the percentage remains fixed, however the resulting fee grows accordingly.
Advantages of Cost-Plus Contracts
Cost-plus contracts have some benefits for both project owners and contractors.
Advantages of cost-plus contracts: Generally speaking, project owners who are more concerned about timeline and quick negotiations (rather than budget) benefit from using cost-plus contracts, as these tend to be easier to arrange with general contractors.
General contra.
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Are cost-plus contracts better than lump sum contracts?
Notably, cost-plus contracts are often easier to negotiate because of the reduced risk for contractors.
Unlike lump sum contracts, in which contractors could face reduced profits when project costs exceed expectations, cost-plus contracts guarantee that the contractor will have costs reimbursed and still receive their fee.
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Cost-Plus Contract Example
Let’s take a closer look at an example of a cost-plus contract for a hypothetical construction project.
A property development company approaches Greene Construction, a general contractor they’ve previously worked with, to help convert a decommissioned airplane hangar into an upscale retail space.
This type of negotiated tendering is common, and th.
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Cost-Plus Contract Template
Many owners and contractors rely on the A103, a sample cost-plus contract produced by the American Institute of Architects (AIA).
This template provides the basic structure of a cost-plus construction agreement, including fields that specify reimbursable costs and how the contractor’s fee will be calculated.
Standard sections about payments, disput.
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Disadvantages of Cost-Plus Contracts
Nonetheless, cost-plus contracts present some disadvantages for the parties involved — though these can usually be mitigated with careful contract formation and relationship building.
Disadvantages of cost-plus contracts: First of all, a basic cost-plus contract leaves the owner unsure of the final construction cost, which could lead to an over-bud.
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How Cost-Plus Contracts Work
A cost-plus contract is a construction agreement that requires reimbursement for project costs as well as a markup that covers the contractor’s overhead and profit.
In other words, the name is a short-hand way of remembering what the contract covers: project costs plus contractor markup.
This contract type is most common between a project owner and.
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Other Contract Types Compared
Cost-plus contracts are useful in a variety of situations, but they aren’t the only type of construction contract that owners and contractors can use for a project.
Depending on the project’s details and the owner’s approach, different types of contracts may be the best fit.
For example:.
1) Lump sum contracts lay out a fixed fee for services at the.
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What is a cost-plus contract?
A cost-plus contract is a construction agreement that requires reimbursement for project costs as well as a markup that covers the contractor’s overhead and profit.
In other words, the name is a short-hand way of remembering what the contract covers:
project costs plus contractor markup.
What’s covered in a cost-plus contract? . ,
What is a cost-plus-fixed-fee contract?
Instead, the cost-plus-fixed fee contract provides for a pre-determined fixed fee reimbursement.
Cost-plus-fixed-fee tends to me more advantageous to the buyer as opposed to the seller as it caps the fee and the fee will not swell or grow based on the future expansion or fluctuations of the budget.
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What should a cost-plus estimate include?
Estimates.
Nearly all cost-plus work comes with an estimate of costs.
The estimate should contain the scope of work, including:
detailed plans and material specifications along with a breakdown of costs for that main phases of work. 