What is a construction cost plus agreement?

Answer 1

Cost plus agreements have been used in the U.S. construction industry for serveral years. However, they are perhaps the most misunderstood type of agreement used to complete construction projects, especially by non-business savvy attorneys and owners. Under cost plus agreements, owners are responsible for paying for all costs associated with the construction of their project - all costs. A cost plus agreement is not unlike any other agreement between contractors and owners; the owner pays all costs. These costs include both direct and indirect costs associated with the construction of their project. Specifically, these costs include materials, labor, equipment, tools, project overhead, and company overhead. Cost plus agreements get their bad reputations from attorneys who have not even a basic understanding of construction cost accounting and from owners who think they know more about constuction management than their construction professionals because their aunt added a porch to their moblile home last year, and they watched it being constructed. Cost plus agreements provide an effective means of completing construction projects, but all persons associated with the construction project must be construction savvy and have a strong understanding of cost accounting. Anything less will end the contractor in court, simply due to ignorance of the part of owners, attorneys, and judges. Dr. Herbert Barber