|
experience that most clients are uninformed
as to what they want, or what will serve them and their project the
best.
To help with that, we have made this primer to help answer some typical
questions.
Stipulated Sum
this type of contract is very simple. The bidding contractor submits a
legal contractual price for the work based on the plans and
specifications submitted. This is the type used in competitive bid
scenarios.
Cost Plus or Construction Management
this type of contract is often used in large sized and developing
projects. Basically, the Owner pays for the direct costs of the project
plus a fee to the Contractor.
| ... |
 |
There are two types of contracts: |
| |
|
 |
Cost Plus a Percentage this type is
when the cost of construction is billed plus a percentage of the
costs. Typically the amount of percentage varies with the size of
the project. A small project could be 20%, and a large project (over
ten million) could be as little as 10%. Most residential projects
are around 15%. |
| |
|
|
Cost Plus a Fixed Fee this is when the
fee for a project is a set number. This number is usually billed
evenly over the length of the project and is obtained by negotiating
between the Owner and Contractor. The fee can be increased if there
is a great deal of extra work (called a cardinal change) on the
project. |
| |
|
There is also a
term associated with Cost Plus contracts called a Guaranteed Maximum
Price (GMP). This is a contractual ceiling that limits how high the
combined price of cost and fee may reach. Any costs over the GMP
become the responsibility of the Contractor. This type of contract
is very similar to a Stipulated Sum. Like a Stipulated Sum, any
additional work requested by the Owner will increase the GMP. |
| |
|
Cost Plus type
contracts are used when the drawings for a project are not 100%
complete at the start of construction. This allows the design team
to continue working while construction on things like the foundation
and framing starts. A project that uses an Owners designer or
decorator during the latter stages would be best served by a Cost
Plus contract because of the changes that are common with that
scenario. |
Changes very simply, anything that is not
on the plans and specifications when bid by the Contractor is extra
work. When extra work arises, a change to the contract is necessary. The
best way to avoid Changes is to either have complete plans at the time
of bid, or not add any new work to the project during its construction.
Quite honestly, this never happens. On a renovation project, conditions
that are hidden by old walls or bad pipes and the like are honest
changes. Also, any changes made by the Owner or design team throughout
the duration of the project may constitute a change. Contractors,
contrary to popular belief, do not look forward to change orders. They
usually involve a great deal of paperwork; delays schedules and can
often cause strife between Owner and Contractor.
In summary, a Stipulated Sum contract is simple but is subject to even
the smallest change orders while a Cost Plus contract is most like
billing time and material. Also, anything not on the plans is an extra.
We are always open to use any type of contract depending on the
circumstance, and will always be happy to provide you with examples for
your legal team and would help explain the types further in person.
|
