COST PLUS CONSTRUCTION
Cost plus construction is a type of construction contract where the owner of the project agrees to pay the contractor for the actual cost of the project plus an additional fee. This additional fee is typically a percentage of the total cost of the project and is intended to cover the contractor’s overhead and profit. Cost plus construction contracts are often used for complex or custom construction projects where it is difficult to accurately estimate the final cost of the project.
THE ADVANTAGES
C ost plus construction are beneficial when projects aren’t fully defined yet, and can eliminate risk for the contractor. Some other benefits include:
- All related expenses are paid
- All the contractor’s risks are covered
- Contractor doesn’t have to “fluff” prices up to cover uncertainties and unexpected costs
- The project doesn’t have to be completely defined; even if the scope of work is not clear, you can begin working
- You can get started sooner on projects rather than waiting for a completed design
- Useful when enough information is not available to create a detailed cost estimate
THE DISADVANTAGES
Followings are disadvanates of cost plus construction
- The final cost of a project is uncertain
- Owner assumes risks of cost overruns
- It can lead to do disputes about what counts as actual construction-related expenses
- Projects can take longer than expected
- It takes more time for a contractor to produce documents that justify all costs
- The contractor must keep accurate records in an organized manner
- Contractors have no incentive to control costs, creating potential for cost overruns
- Owner must trust the contractor to act responsibly
- It’s difficult to produce a project on time and on budget because you can’t predict all issues that cause delays
THE DISADVANTAGES
- The final cost of a project is uncertain
- Owner assumes risks of cost overruns
- It can lead to do disputes about what counts as actual construction-related expenses
- Projects can take longer than expected
- It takes more time for a contractor to produce documents that justify all costs
- The contractor must keep accurate records in an organized manner
- Contractors have no incentive to control costs, creating potential for cost overruns
- Owner must trust the contractor to act responsibly
- It’s difficult to produce a project on time and on budget because you can’t predict all issues that cause delays