Cost Plus Service Agreement

Finally, a final drawback, this time for owners: cost-plus contracts can create a kind of conflict of interest for contractors, which can result in higher prices for homeowners. Think about it: cost-plus. The higher the cost of the project, the more « More » the contractor can charge. As a result, there is little incentive to keep costs low unless there is a spending cap. The use of a cost-plus contract can have drawbacks. Since a contractor must justify the reasons why the expenses are related to a project, this may require additional efforts to manage and track all related expenses. For disorganized contractors, a cost-plus contract could really create some problems. Cost-plus contracts can be beneficial to both the owner and the contractor if an agreement is developed in depth at the beginning. According to the American Bar Association, communication is essential for owners and contractors to be informed of project conditions and for unexpected costs to occur. Another advantage of this type of contract is that it can be used to set a cap or cap on the amount of money a contractor can/will spend on a particular project. For a landowner, this can help maintain a tight budget. As discussed further in the next section, non-occupancy of a cost-plus contract can be detrimental. Another problem could be the consideration of indirect costs.

Contractors must turn on the lights, pay the rent and cover all possible administrative costs. These are not fees that an owner is usually happy to cover. It is therefore important to ensure that the « plus » is sufficient to cover the indirect costs. If compiling an estimate for a job proves difficult, a cost-plus contract can help. Since fees are reimbursed when work arrives, a contractor doesn`t have to worry about an inaccurate or erroneous estimate that ruins his or her margin of employment – he`s already installed! A cost-plus contract is usually a win-win situation for the contractor, as all risks are covered for the most part and all costs are probably paid for. A cost-plus contract offers the contractor a great opportunity to recover all construction costs, but if a good registration is not applied, some costs cannot be recoverable. Some basic tips can help contractors stay out of trouble: a cost-plus contract has advantages and some disadvantages for the contractor and the project owner. Among the advantages of a cost-plus contract: Some of the drawbacks of a cost-plus contract are: in this type of contract, your profit is already predeceased – you (and your client and other parties) know exactly how much you will earn at work because it is included in the contract.