Understanding Cost Plus Construction Project Management

Embarking on the journey to build your dream home can be both exhilarating and daunting. With numerous decisions to make and details to consider, choosing the right contract for your construction project is pivotal. One option that offers transparency, flexibility, and a partnership approach is the cost-plus contract.

Cost-Plus Contracts Explained

At its core, a cost-plus contract is a type of agreement where the homeowner directly pays contractor costs without markup, plus an additional fee that covers the project manager's, labor, skills and expertise in construction management. This contract type is particularly beneficial when project scopes are not entirely clear at the outset, allowing construction to commence swiftly while maintaining financial transparency.

Why Choose a Cost-Plus Contract for Your Home?

1. Transparency and Trust: Cost-plus contracts lay all cards on the table. You'll see where every penny is going, fostering a transparent relationship with your project manager. This transparency is the foundation of trust and confidence in your project's execution.

2. Flexibility in Design: Dream homes are often unique, reflecting personal tastes and needs. Cost-plus contracts provide the flexibility to adjust the project scope and design as your vision evolves, without being tightly bound by a fixed contract sum.

3. Quality Assurance: With no incentive for the project manager to cut corners, cost-plus contracts encourage focusing on quality. Contractors are reimbursed for actual costs without markup, ensuring that the materials and workmanship meet your standards and expectations.

4. Efficient Project Commencement: Waiting for every detail to be finalized before starting construction can delay your project. Cost-plus contracts allow work to begin while details are being finalized, keeping your project timeline on track.

Managing the Cost-Plus Contract

While the benefits are significant, it's crucial to manage a cost-plus contract effectively:

• Budget Oversight: Regularly review financial updates from your project manager to stay informed and ensure costs align with your expectations.

• Clear Communication: Establish open lines of communication with your project manager to discuss any changes or concerns as they arise.

• Contract Clarity: Ensure your contract includes a cap or "not-to-exceed" clause to protect against unforeseen expenses, providing peace of mind regarding your budget.

Conclusion

Choosing a cost-plus contract can be a wise decision for building your dream home, offering a blend of transparency, flexibility, and quality. By understanding the dynamics of this contract type and maintaining active involvement in your project, you can navigate the construction process with confidence, ensuring your dream home becomes a reality. Remember, the right partnership with your project manager and a clear understanding of your contract can make the journey to your dream home a rewarding experience.

Tim Lewis is a real estate professional with decades of experience spanning all aspects of the market. He is Cornell University Project Management trained as well as an MIT Entrepreneur Bootcamp alumnus. He lives with his wife and two children in Northern CA and in Lake Tahoe.