What is the difference between cost-plus and time and management contracts? Since both of them are based on the actual costs covered. Thanks! :)
1 reply
Jan 23, 2020
In a cost plus contract, the fee you make is usually based on the costs incurred. So if your contract calls for you to make cost plus 20%, you'll make 20% of the costs incurred on the project. If the costs on a project are $100,000.00, your fee will be $20,000.00 and the customer will spend a total of $120,000.00 on the project. The benefit to this is that its very easy to track your fee because you just take the material and subcontractor invoices, multiply them by the percentage, and you have your fee. The downside to these types of contracts is that they pit you against the customer, with the customer trying to find ways to save money (reducing your fee), while your motivations may be different. Further, cost plus contracts don't take into account the amount of time you spend on a project.
Time/management contracts on the other hand are primarily focused on the length of time you spend on a project. Maybe you are getting paid a weekly or monthly flat fee for the duration of the project or maybe an hourly rate for on-site supervision. This is a great way to make sure you are paid for your time on a project, but can cause issues if there are delays. Many customers don't want to pay for management if nothing is happening on the jobsite.
An ideal circumstance would be a hybrid contract where you get paid cost plus a lower percentage, plus an hourly rate for your time spent at the project. A construction attorney can help you come up with the right mix of fee provisions and protection provisions to help you put together a good contract.