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Cost-Plus Contracts in Florida Construction Projects


Florida construction contractors know that business has been booming in recent years, and the trends look to continue according to industry experts. Statistics indicate that up to 60 percent of construction company executives forecast expansion throughout 2023. By 2024, new construction is predicted to reach $1.23 trillion. To ensure you get your piece of the pie and protect your interests, it is essential to confirm that all of your construction contracts are in order.

There are five types of contracts frequently used in construction, and each is suited for different projects. With some projects, you might use multiple contracts for different stages or tasks involved with the job. One you should become familiar with is the cost-plus construction contract, which has both pros and cons depending on the circumstances. You should always trust a Florida construction contracts lawyer to make sure you properly manage risk through the terms of these agreements. An overview of how cost-plus contracts in construction is also useful.

 How Cost-Plus Contracts Work: There are two key components to these contracts:

  1. The agreement requires reimbursement to the contractor for all project costs incurred, including labor, materials, payments to subcontractors, amounts for change orders, and related expenses.
  1. There is a markup added to the cost value to account for the contractor’s overhead and profit – i.e., what the contractor earns to perform the essential tasks for the project. This value may be a percentage of the total project cost or a fixed fee, and it may include extra payments if the contractor meets milestones early. 

Pros and Cons of Cost-Plus Agreements: This type of contract is favorable to the contractor, because you know costs are covered and there is less risk. Plus, with cost-plus, you are typically reimbursed for expenses periodically, leading to fewer issues with cash flow.

One downside of cost-plus agreements is something that you can avoid. Keep in mind that not all costs are reimbursable, so you need to understand what items are covered. If you make a mistake, you will be paying, cutting into profits. Another issue is that disputes about change orders often arise with cost-plus contracts.

 Importance of Contractual Terms: The basic arrangement of a cost-plus contract is straightforward, but the details can be challenging. When negotiating terms, you must be focused on mitigating risks and enhancing profitability. Make sure you are on the same page with respect to:

  • What costs, materials, and supplies are reimbursable;
  • Requesting and managing change orders, including the expenses related to them;
  • Dispute resolution through mediation, arbitration, or other options; and,
  • The specifics on preparing and submitting payment applications for reimbursement.

Discuss Terms with a Florida Construction Contracts Attorney

This description of cost-plus contracts is useful, but you can see the challenges in determining which types of construction contract terms suit your needs. To learn more about your options, please contact Linkhorst Law Firm, P.A. You can call 561-626-8880 or visit our website to set up a consultation with a Palm Beach County construction lawyer.



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