Our Tallahassee construction law attorneys are well aware of what happens when pricing provisions are not executed properly within contracts. A contract will create a legal relationship, an offer, an acceptance, and other considerations for involved parties. This is why contracts should be thorough, clear, and unambiguous. This will help mitigate the risk of disputes. Every party should be able to understand it in its entirety and should be able to come to the same conclusions of the agreement.
In Part 1 of our article series, we introduced you to the lump sum contract classification. In this second part, we will introduce you to the cost plus and unit price classifications.
Cost Plus (With GMP)
The cost plus contract with guaranteed maximum price (GMP) agreement. The GMP limits the owner’s cost liability which means the owner pays the contractor no more than the GMP in exchange for the work completed. However, the contractor is responsible for costs over that amount. The difference between this agreement and the lump sum agreement is that the owner is not responsible for extra contingencies. If additional costs arise, more risk will shift to the to contractor.
Unit price contracts are more commonly used on public works projects. In this type of agreement, the owner and contractor agree on pricing for specified “unit” work. Think of this contract as a task oriented contract. The owner will pay the contractor a fixed amount for each completed unit of work. This type of agreement works best for less complex and easily projects. The key to success with this type of agreement is estimating the unit pricing properly.
Contracts are not one-size-fits-all. We recommended you seek legal assistance when negotiating and drafting a contract for your next construction project. We have provided an overview of pricing classifications, but it is crucial you hire an attorney to help you decide which is best for your specific situation.
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.