The goals of a construction project are many. Goals include a complete structure that is not only aesthetically pleasing, but one that is functional, durable, and built within a reasonable time frame. Also, everyone desires a finished product that proves to be cost-effective. Achieving cost-effectiveness can be tough, but our Jacksonville construction lawyers believe the following tips will help keep your construction costs under control. Read part two for more strategies.
A Realistic Plan
Developing a realistic plan from the onset is vital. When you create the cost plan, you’ll want to include all construction costs. This plan will help you control costs and complete the project within budget. You should do the following:
- Use the cost plan to design at every stage
- Control and minimize changes
- Keep communication lines open
- Collaborate with key team members when developing the cost plan
- Strategic Pricing
Several pricing strategies are used in the construction industry. No matter which you choose, it can be customized according to the needs of the particular project. Also, keep in mind factors such as the scope, the client’s understanding, and your own experience when selecting a pricing strategy. Pricing strategies include:
Fixed price: The contractor assumes the risks and receives the benefits. If costs are lower than the original contract price, the contractor pockets the extra money. If cost end up being much higher than anticipated, the contractor loses money.
Not-to-exceed: With an NTE contract, the contractor assumes all of the risk, but the client receives the benefits. If costs are lower than the original contract price, the client pays the actual costs, but the contractor loses revenue. If the costs are higher than the original contract price, the client pays the contract price only, and still, the contractor loses revenue.
Aggregate Not-to-Exceed: The contractor still assumes the risk; however, but has better control over the risk incurred. The client receives the benefits. The control comes in for the contractor since the project is broken down into smaller parts with their own contract price. In this instance some losses may occur in some area but not in others.
Time and Materials (T&M): This is used when the scope of work is ambiguous and the costs of labor and materials are unknown. Here, the client assumes the risk and receives the benefits.
Allowance: There is a general scope of work and a predetermined cost for labor and materials. Like the T&M, the client assumes the risk and receives the benefits; risk is better managed under this type of contract.
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.