Set your Contract Price: Cost Plus Fixed Percentage Contracts
The price must be just right! The all-important question is: How do you set your contract price and get it just right? As a roofing contractor you know how important setting your fee is. Bidding too high may mean you lose out on contracts. On the flip side, bidding too low may incur financial losses for your company.
Construction contracts fall under various categories. In this quick guide we will show you how to navigate a cost plus fixed percentage contract, and talk about why this type of contract minimizes your risk.
How Do You Set Your Contract Price On A Plus Fixed Percentage Contract?
In a cost plus fixed percentage contract, you, as the contractor charges the project owner for the direct and indirect costs incurred during construction. You add a percentage on top to represent your profit. The contract document must specify the percentage amount the owner pays you. This document is legal and binding.
Cross-check the fine print so you know the precise costs covered in the construction contract, and if they are covered adequately. If you do not address this, disagreements on expense claims may arise further down the line.
When Is A Cost Plus Fixed Percentage Contract Preferable?
As a roofing contractor, when should you consider using a cost plus fixed price contract to set your contractor price? Here are some circumstances where we recommend this kind of contract:
- If the scope of the project has not been completely defined, and you cannot perform a detailed estimate of the construction project
- If the designs for the project have not been completed
- When a project owner has a constrained construction budget
What Are The Advantages Of A Cost Plus Fixed Percentage Contract?
There are advantages to setting your contractor price this way.
- It affords you as the contractor minimum risk since all your expenses are highly likely to be paid
- Affords you the leeway to use quality construction materials
- Minimizes your risks as a contractor, such as unpaid expenses
How To Secure Your Cost Plus Fixed % Contract
Keep detailed records on both direct and indirect costs during the course of the construction project, with supporting financial documents. Since the homeowner pays all construction expenses, unclear records may result in unpaid amounts to the contractor, or disputed claims that may need third-party mediation.
As a roofing contractor, this contract can work in your favor by offering affordable roofing material options to the homeowner, which in turn will lower your bid. Since the charges are based on cost of materials, purchase of excess materials results in wastage. An honest approach benefits the homeowner and builds your reputation.
Keep in mind the construction contract might contain a ‘not to exceed’ stipulation. You may incur penalties for breach of contract.
How Does A Cost Plus Fixed Percentage Contract Impact On Your Liability?
Generally, you calculate a Builder’s Risk Insurance policy based on the cost of the construction project. If you over-purchase construction materials which in turn raises the cost of construction, you may pay higher premiums on your Builder’s Risk Insurance. This can be minimized by keeping the cost of materials down.
We provide you with guidance on negotiating agreeable rates on your Builder’s Risk policy and other Contractor Liability covers. So, contact Contractor’s Liability today on (877) 960 0221