A cost-plus fixed fee construction contract, also known as a cost reimbursement contract, provides both parties a full level of transparency and comfort. This contract allows the general contractor to be paid for all allowed expenses and profit outlined in the contract.
General contractors, like other vendors, typically incur expenses throughout the duration of a project to be reimbursed. These fees might include travel expenses, materials, labor and equipment needed. Cost-plus fixed fee contracts should provide in detail, what should be properly reimbursed and what should not. There are three main components of a cost-plus fixed fee contract:
Direct Costs: Direct costs are the basic cost incurred by the general contractor. These items include, but are not limited to materials, labor and equipment.
Overhead Costs (General Conditions): Overhead costs, also known as indirect costs, are the business-related expenses deemed necessary to fulfill the contract at hand. These costs are typically laid out as a percentage of overall construction costs, and can include items such as printing out drawings, site visits, job trailers, onsite superintendent and project management.
Profit (Contractors Fee): Like any other business, the general contractor needs to be turning in a profit for the work performed. Typically, the profit is a fixed fee percentage based on the total material, labor and equipment costs of the project.
A cost-plus fixed fee construction contract is both common and necessary in the commercial real estate sector. Whether you’re relocating your office space, improving your existing or building a new ground up facility, this contract can provide a solid backbone to your project, allowing you to clearly outline what shall be reimbursed and what is not with full transparency.