Cost Plus Contracts
How We Charge
A cost-plus contract is a tool that the contractor uses to get paid for almost every expense related to the construction job. But the contractor must justify and present evidence for the costs related to the job. Furthermore, the contractor could be denied recovery of associated costs if a negligent act or other relevant error is attributable to the contractor. Some cost-plus contracts can be drafted to restrain the contractor with a "not to exceed" amount for construction costs. There are three main components of a cost-plus contract:
Defining job costs.
For this approach to work, it’s essential that the contractor make clear to the owner which costs will be considered direct job costs – and therefore reimbursable. The obvious costs are subcontractors, materials and supplies used on the job, such as lumber and nails, along with consumables such as plastic sheeting, bits, and blades used up on the job. For labor, the reimbursable rate typically includes “labor burden” of employee taxes, benefits, and insurance. Incidental costs like dumpster fees, permit fees, and equipment rental are typically included. Other costs are subject to negotiation: rental/usage fees for equipment owned by the contractor, vehicle expenses, insurance costs. As an owner, I would expect these to be covered by the contractor’s overhead, but either way, it should be clear what you will be billed for as a job cost.
A related issue is the contractor’s time spent on job supervision. Generally, this is reimbursable if he is on the job site overseeing subs or his own crew (or swinging a hammer himself). Management time off-site is generally not reimbursable unless specific tasks are listed as billable, such as making owner-requested plan revisions.