JASTRO | Residential Construction Services
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A Cost-Plus Contract
When it’s difficult or impossible to estimate the full cost of a construction or remodeling project ahead of time, we offer a cost-plus agreement. Cost-plus contracts are an alternative to fixed-price or “lump sum” agreements that allow greater flexibility and more transparency for the owner of a property.
Definition
In a construction cost-plus contract, the buyer agrees to cover the actual expenses of the project. These costs include labor and materials, plus other costs incurred to complete the work. The “plus” part refers to a fixed fee agreed upon in advance that covers the contractor’s overhead and profit. Typically, cost-plus contracts are “open book,” meaning the buyer has the right to see exactly what the expenses are. Some cost-plus contracts include a guaranteed maximum price.
Considerations
Owners typically prefer cost-plus contracts when they want the flexibility to make changes as a project progresses. If you lack experience with construction projects or you are operating on a tight budget, you may be better off with a lump-sum price, since there is unavoidable uncertainty about the ultimate cost of a project priced on a cost-plus basis.