If a project owner offers you a fixed sum for a contract with no room for overruns, should you take it? This is a primary concern for a roofing contractor. In your line of work, you may have encountered instances where the project owner has a set roofing contract price. You are then obliged to stick within this budget.
In this guide, we explain the nitty-gritty of guaranteed maximum price or cost contracts. When to take them on and how to manage your risks.
How does a guaranteed maximum price contract work?
A project owner has a design and a fixed budget. They approach you, the contractor with their design and budget. This is a guaranteed maximum price (GMP) contract. You decide whether you can reasonably do the roofing job within this budget and still make a profit.
For savings made on the owner’s roofing contract price they keep the extra cash. You may negotiate to split the cost savings with the owner on a fixed percentage or a variable percentage based on the monies saved.
The downside is, if the project runs over budget, you are liable to shoulder the extra cost.
Should a roofing contractor use GMP?
When taking on a GMP contract consider the following:
- Your contract should stipulate very clearly the extent of the works.
- Further, your contract should stipulate the process for re-negotiation in the event the project owner expands the scope of the work
- The work to be undertaken should be a straightforward roofing job with minimal chances of complications or risks arising in the course of the work
How do I cover risks when I set my roofing contract price?
Since you as the contractor are liable for all cost overruns, weighing risks is important when taking on GMP contracts. The first step to take is to ensure both you and the contractor agree on the scope of work. Make no assumptions. All works should be covered in the contract. From the leak barriers, underlayment to the ventilation systems. Any work to be done on the roof must be covered in the contract.
For renovation works, conduct a thorough assessment of the roof to ensure the work needed is as-is. Hidden underlying damage that only comes to light after work has commenced might alter the total cost and result in overruns.
Negotiate for an ‘extra works’ clause. This covers you in case the owner changes the scope of the work, or there are extensive additional works without which the project cannot succeed.
Is roofing insurance coverage beneficial for a GMP contract?
Roofing insurance coverage is as beneficial to you as it is crucial. Since a GMP contract leaves minimal room for cost overruns and delays caused by accidents or incidences, this cover provides the assurance you will incur no additional costs in the event of accidents or mishaps. Our team of experts are here to give you more information on how to secure the right Contractor’s Liability for your business. Call us now on 888-676-0923.