Setting your roofing contract price is key to a successful project and construction business. Why are there varied methods to set the contract price? How do you select the right contract under different circumstances? In this guide, we examine how a targeted estimate contract works, when to use it, and how it can be beneficial to you and the contract owner.
How does a targeted estimate contract work?
It’s said that the targeted estimate contract or the targeted cost contract makes allies of project owners and contractors. Why is this?
With a targeted estimate contract, the contractor submits what he/she estimates to be the total cost of construction (labor, materials, utilities, overheads and profit) to the project owner for review. Once the owner approves this estimate the two parties agree on a gainshare/painshare formula.
This means that for money saved off the targeted estimate, the contractor and project owner share the gains on savings. On the other hand, for money spent over the budget, the contractor and project owner share the pain of the added expenditure.
From the onset, the owner and contractor are allies in keeping costs down as they both benefit.
A target estimate contract is in three parts:
- Base fees: Basic cost of materials, labor and on-site resources needed to complete the project
- Contractor fees: Cost of contractor overheads including insurance and contractor’s profit
- Risk: An intangible cost included in the contractor’s fee that covers the contractor or owner in case of unexpected outcomes
Include a performance target in the contract. This would outline the work quality and delivary of the timeframes of the contract.
When do you set your roofing contract price using the targeted estimate?
A target estimate for setting your roofing contract price is advisable when the project owner has an undefined budget. A reason could be the project design is incomplete. Additionally, it could be the owner anticipates changes to the project scope down the line.
In some instances, especially for a large project, you may have to break down the project into phases. You would then set your roofing contract price target cost for each phase.
How can a targeted estimate contract benefit my business?
- Reduced risk: As you and the project owner share the target overruns, the owner motivates to keep the project on course
- Increased profit margins: If the project is completed in time and below budget, you stand to make more as you are entitled to part of the savings
- Amicable relations: Since you and the project owner share aligned interests of keeping project costs down, cooperation and project execution goes more smoothly.
Do I benefit from roofing insurance coverage for a targeted estimate contract?
Generally, Builder’s Risk Insurance is partly calculated based on the project cost. You may want to ascertain with your insurance provider how your premiums work, as you will be seeking a cover with a target estimate, and not the fixed budget for the project.
For guidance and a quick quote on Roofing Insurance coverage and how it benefits your construction business, call Contractors Liability today on 888-676-0923