Ch. 16 - Contracting Procedure; Q 2, 4, and 5.docx

Generally the payment schedule is created by the

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the contractor are based on the percentage of completed work. Generally, the payment schedule is created by the contractor and reviewed by the owner and architect during the course of construction. Disadvantages There are disadvantages an owner must consider under a lump sum agreement. Perhaps the biggest concerns are cost overruns and lack of flexibility. Cost Plus Percentage Contract Advantages For jobs with a lot unknowns, contractor does not have to pad the price for uncertainty. Can get started quickly on jobs with many unknowns and incomplete plans. You pay only for work completed, with open books, at a known rate. Disadvantages Contractor has little incentive to keep costs down. Owner assumes all the risk of cost overruns Requires high level of trust in contractor Cost-Plus Fixed Fee Contract Advantages
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The cost-plus agreement is ideal for fast-tracked projects or for situations where the contractor becomes involved before the construction documents are substantially completed. The cost-plus contract allows an owner to have more flexibility to change designs and materials as the project proceeds. Disadvantages The biggest disadvantage of the cost-plus contract is that the costs can rise quickly. Under the cost-plus contract the owner must verify hundreds and often thousands of claimed costs; such an arrangement is ripe for a dishonest contractor to defraud the owner.
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  • Fall '18
  • Julio Smith
  • Cost overrun

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