What is a cost-plus contract?

If you’re like most remodelers, renovators, trade contractors, or residential construction specialists, you’re used to providing comprehensive construction estimates that include all the materials, tools, labor, and other elements required to get the job done.

However, occasionally, especially if you work for construction professionals like engineers, project managers, or architects, you might be asked to enter into a cost-plus contractor cost-plus agreement. Let’s take a closer look at what that is, how it differs from what you usually do, and when it could be beneficial.

How Do Cost-Plus Contracts Work?

Instead of a traditional construction estimate and quote, where you do a full take-off and calculate a price for your customer, cost-plus contracts are a lot more open-ended, and there’s no fixed price at the start of the project.

Instead, you and your client agree that they will pay the cost of any material, labor, and other requirements, plus a pre-determined markup on those things.

Usually, you will provide your customer with hourly rates for different types of labor and equipment, and those will be used to calculate the laborportion of your progress and final billing. As for materials, it’spretty standard to simply provide copies of allyour material purchase invoices to your client along with your marked-up invoices.

When Are Cost Plus Contracts a Good Idea?

If you’re used to providing detailed, comprehensive quotes for your construction projects, whether you do them by hand or generate them in a construction estimating software package, it can feel a little uncomfortable to be relying on hourly rates and a lot more uncomfortable to provide your client with your actual material invoices!

However, while this is definitely not the way most residential construction projects are priced and managed, there are some benefits to using the cost-plus contract model for specific jobs, including:

• If your client is not yet sure what the final scope and specification will be, you can get started while they finalize their plans
• If something changes along the way, there’s no need to re-estimate the whole project – you simply charge your client for the new materials they have chosen plus the agreed markup and track the time it takes to do the work to the final specification
• As long as you are tracking your labor and equipment effectively, progress billing and invoicing is very simple!
• Since you are paid for the actual time and costs required to provide all the labor for the job, there’s no chance you can underestimate the time it will take to complete

What Are the Drawbacks to Cost Plus Contracts?

Of course, nothing is ever all good news, and cost-plus contracts are no different. The biggest drawback to this type of construction contract is that it requires meticulous record-keeping. You need to save every invoice and carefully track every hour every crew member spends on-site to ensure that you cover all your costs.

Cost-plus contracts are not all that common in the residential construction world, but in some situations, they may be a better choice for a specific project or client.

To streamline your quote estimate workflow and ensure the accuracy of your construction quotes based on market-related costs specific to your location or zip code, leveraging a construction estimating software offers the advantage of integrating with tools like AutoCost. This integration can help guarantee the precision of material costs in your construction quotes across a wide range of over 25,000 construction items.

If you want to easily manage your material requirements for accurate construction quotes, book a demo today.