Classifying Contract Prices Part 1
The Tallahassee construction lawyers of Trent Cotney, P.A. understand why a strong contract is imperative to the success of any construction project. Even with contracts in place risks are ever present. The potential for disputes still exists because that is the nature of the construction industry. However, an ironclad contract can serve as a defense in the event things do not go as smoothly as planned.
In this two-part article, we’ll discuss an area of great importance within contracts—Pricing. There are three ways to classify contract prices. Visit Part 2 to read the rest of the article.
Most common in construction contracts and is also known as a fixed price contract. With this agreement, the price for all of the work is agreed beforehand. The contractor takes on most of the risk because the price that is agreed upon is “fixed”. This means that if the contractor can complete the work in less time, he is still entitled to the agreed upon payment. On the downside, he is responsible for the difference if he is not able to complete the work within the constraints of the agreed upon price. Naturally an increase in profits for the contractor is the biggest benefit of this type of contract. To avoid losing profit it is crucial to perform accurate estimates. Owners experience less liability but can end up paying more in the end if a project’s price is overestimated. Benefits of this contract include low risk for owners, fixed costs, easy bid selection, and possibly faster project completion times.
Cost Plus (Fee)
The cost plus fee pricing combines the costs and fees associated with a contractors performing and providing work. This type of agreement has many intricacies and is best drafted with the help of an attorney especially when it comes to correctly identifying fees and costs amounts.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.