Contractors and Cost-Plus Contracts
For contractors, there is a great sense of accomplishment when the assorted parts and players on a project are pulled together in order to create a great structure. Unfortunately, there are numerous challenges along the way that threaten the success of your business. Issues with material delivery, change orders, and subcontractors all have to be handled deftly in order to keep project on schedule.
At heart of many project issues is the contract. It must be one that protects your interest, which can be achieved with the help of an Orlando construction lawyer. One contract-type that favors contractors is the cost-plus contract. Cost-plus contracts pay contractors for all direct and indirect expenses related to a project along with a fee. The fee is in addition to the reimbursement for project expenses and serves as a built-in profit for the contractor.
Cost-plus contracts are often found in projects in which costs, because of extenuating circumstances, are difficult to estimate. Circumstances may include incomplete designs, hidden conditions, or a simple inability to give an accurate estimate. Cost-plus contracts are also used by entities that are more concerned about quality than price.
Cost-plus contracts are advantageous to contractors because it ensures that they will make a profit on a job. Owners like these contracts because they know that contractors won’t have to cut corners to make a profit. However, it does present a challenge to them. Owners are concerned because there’s no incentive to over spend on materials, which can happen with cost-plus contracts. That’s why many cost-plus contracts have a provision that caps the amount of money that can be spent on a contract. Cost-plus contracts may also have an extensive approval process for what is considered as a necessary cost for maintaining a project. With this in mind, it’s critical that contractors track all expensive and keep thorough project notes.
Despite the advantages to contractors, cost-plus contracts still have their opponents, even in the construction industry. Detractors point to the extensive justification of costs and the potential for disputes over expenses as a primary reason not to use a cost-plus contract.
As a contractor, you must determine whether a cost-plus contract works best for your business model. If you need contract guidance, from reviewing a contract to writing one, the Orlando construction lawyers at Cotney Construction Law are here to help.
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.