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?
The targeted estimate contract or the targeted cost contract has been touted for making 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.
3 Part calculation
A target estimate contract can be broken down into 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
A performance target may be included in the contract. This would outline the work quality and the time-frames in which the contract is to be delivered.
When to set your roofing contract price
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: Since overruns in budget are shared between you and the project owner, the owner is motivated 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.
How does my roofing contract price affect my Contractor Insurance?
Generally, Contractor’s 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. Find out more from the agents at Contractors Liability. Call 866 225 1950