![]() ![]() Whether you’re a contractor or owner, consider signing a cost-plus reimbursement contract for your next project. Unexpected household expenses are a part of the life contract every family signs. They’ll get the highest quality of work a contractor has to offer, including labor and materials, while maintaining cost and timeline integrity. The view for an owner is equally appealing. For contractors, it reduces risk, takes the guesswork out of estimating, and contains additional performance-based profits. Under the right circumstances, a cost-plus reimbursement contract is a perfect document. This clause caps expenses and keeps the project from damaging the owner financially while still positioning both parties for success. ![]() Most use what’s known as a maximum cost clause before work begins. To be clear, owners don’t typically walk into this situation haphazardly. This is because any expenses are the responsibility of the owner. This is far easier than doing it all at once which is where challenges tend to occur.įor contractors, risks are always a factor when taking on a project, but under this agreement, they’re all but eliminated. With that, contractors can estimate costs as they become necessary. The good news is that cost-plus reimbursement contracts are essentially estimate-as-you-go instruments. Even for the most experienced professional, accuracy in estimations isn’t a given. When it comes to a project of any size, estimating can be a challenge. As the scope of the project becomes clearer, the chances for additional profits might appear which is a win for any contractor. For example, projects that use these agreements typically come with unknowns including designs and costs. If a contractor is financially challenged, entering this agreement where adequate cash on hand is a must could be problematic.Ĭontractors can reap considerable rewards from a cost-plus reimbursement contract. Contractors are essentially expected to fund the project. These clauses incentivize contractors to efficiently deliver their highest quality work.Ī couple of caveats an owner should consider before signing off are contractor cash flow and working capital. These contracts often contain performance-based clauses with financial repercussions directly tied to them. As such, owners can expect to receive fair pricing and honest bids.Ĭontractor efficiency rises when a cost-plus reimbursement contract is used. With a cost-plus reimbursement contract, contractors understand that a bonus structure already exists. ![]() Overbidding is something every owner faces from time to time as contractors look to either add profit or protect themselves from a loss. With that, the need to skimp on labor or materials is eliminated which ultimately leads to a higher quality of work. This is because they agreed to pay for the expenses. Also, in this agreement, contractors understand that they’re due reimbursement fees and bonuses. For starters, they can expect premium labor and materials. On the surface, it looks as though contractors are the only winner, but a closer look shows that there’s something for everyone.įor an owner, entering a cost-plus reimbursement contract comes with several advantages. Couple this with the additional fees in the agreement makes it an attractive option for contractors and owners alike. Any increase in expenses falls at the feet of the owner. Unlike fixed-price contracts where expenses, (even the unexpected ones!), are the responsibility of the contractor, cost-plus reimbursement contracts are different. What are Cost-Plus Reimbursement Contracts?Ī cost-plus reimbursement contract calls for the contractor to be paid for all construction project expenses and additional agreed-upon fees. Too bad that, unlike construction, life doesn’t come with a cost-plus reimbursement contract. Too bad life has no promise to reimburse and add a little more to the wallet when the dust settles. Let’s face it, these things are part of the life contract families sign in some form or fashion. All these things can lead to a household fiscal meltdown. A blown transmission, a water heater that needs replacing, or major appliance purchase. But sometimes, an unexpected expense arises, and this is where things can go off the rails. It provides financial structure, and guidance while keeping family money matters running smoothly. The budget: A staple in American households. ![]()
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