reimbursable items is required. This agreement is often used when speed, uniqueness of the project, and quality take precedence. This contract arrangement allows for construction to begin before all the drawings and specifications are completed, thus reducing the time required to complete the project. The contract should detail accounting requirements, record keeping, and purchasing procedures.
Cost-plus type contracts include a project budget developed by all members of the project team.
Percentage fee. The percentage fee allows the owner the opportunity to profit if prices go down and changes in the work may be readily made. The major disadvantage is that the fee increases with construction costs, so there is little incentive on the contractor’s part to keep costs low.
Fixed fee. The advantage of the fixed fee include the owner’s ability to reduce construction time by beginning construction before the drawings and specifications are completed, thus removing the temptation for the contractor to increase costs or cut quality while maintaining a professional status. Among the disadvantages are that the exact cost of the project is not known in advance, extensive accounting is required, and that keeping costs low depends on the character and integrity of the contractor.
Fixed fee with guaranteed maximum costs. Advantage of this fixed fee is that a guaranteed maximum cost is assured to the owner: it generally provides an incentive to contractor to keep the costs down since they share in any savings. Again, the contractor assumes a professional status.
Sliding scale fee. The sliding scale fee provides an answer to the disadvantages of the percentage fee, because as the cost of the project increases, the percentage fee of construction decreases. The contractor is motivated to provide strong leadership so that the project will be completed swiftly at a low cost. Disadvantages are that the cost cannot be predetermined, extensive changes may require modification of the scale, and extensive accounting is required.
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