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cost plus contract

aspen | Posted in Business on August 19, 2004 04:07am

Hello all,

I currently use a fixed price contract and feel I have a well rounded one in place I am just not sure how to word the contract sum portion for a cost plus job if anyone wishes to share their paragraph with me I would greatly appreciate it. Due to the rising cost of all materials and labor I am strictly going to a T&M basis. This is the only way to cover myself in such a volitile market. Thanks again,

 

Mark Miller

Aspen Homebuilding Inc.

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  1. User avater
    Sphere | Aug 19, 2004 04:19am | #1

    I like to propose a "not to exceed"  sum, with an added blurb that if my costs rise 15% or more during the job, it gets passed on. Hope that helps.

     

    Spheramid Enterprises Architectural Woodworks

    Repairs, Remodeling, Restorations. 

    1. Isamemon | Aug 19, 2004 06:23am | #2

      I agree, not to exceed, unless additons, changes of course

      but by all means make sure that "costs" cover all costs including overhead

      1. aspen | Aug 19, 2004 07:00am | #3

        This is all good and if I were to do a not to exceed number then ishould just be a fixed price. My concern is the unknowns (lumber, steel prices, concrete prices etc.) these are the number that are killing my business especially the lumber. Most of my customers are willing to go on a time and material plus a percentage for my fee it is just hard to state that in a contract.

  2. User avater
    BillHartmann | Aug 19, 2004 07:08am | #4

    You said a cost plus and then you say time and material. Which is it?

    Actually it sounds like you might want to continue with what you are familar with and add a cost escalator.

  3. davidmeiland | Aug 27, 2004 03:42am | #5

    Mark,

    I use a very similar contract for fixed price and t&m/cost plus. In the contract sum paragraph it says "The amount due under this agreement will be determined on a time and materials basis, specific details of which are attached hereto as 'Exhibit 1' and incorporated herein by reference". Exhibit 1 is a complete (as much as I can make it) listing of the costs that are charged to the owner and the costs that are not, along with a schedule of rates for the different categories of worker (journeyman, midlevel, laborer) and the profit and overhead to be added. In the payment schedule paragraph it states that invoices to the owner will be mailed weekly and that payment is due in my office not later than 7 calendar days following the invoice date.

    If there are plans, those would be Exhibit 1 and contract sum would be 2.

    A material cost escalation clause is a possibility. It requires you to document your basis for estimating a given cost (i.e. a written quote from the lumberyard) and then document the increased cost if there is an increase. Lots of paperwork but might work if for example you get lumber package quotes for entire jobs from your yard. I suppose you could also create your own 'schedule' of material costs, i.e. 2x4-8' df#2 at X dollars, 1/2x4x8 CDX at Y dollars... and so on.

    Another strategy I have seen is to include the materials in a job as an allowance. You allow a lump sum of X dollars for materials based on your best estimate, but bill the customer for actual cost after the job is done, using a change order to reconcile the difference. If it goes down, they save, if it goes up you are covered. Be sure you do not underestimate or they will accuse you of low-balling. Basically, the job is fixed price with regards to labor and subs, and t&m (or just 'm') with regards to materials. You can break the materials estimate/allowance into multiple line items, like concrete, steel, framing materials, doors/windows, siding, interior trim, insulation, etc.

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