Understanding Cost-Plus Construction Contracts

1. McSwain Builders - Custom Home Builders in Roaring Fork Valley Understanding Cost-Plus Construction Contracts The most common method to secure a relationship between a Builder/General Contractors and a customer in the Roaring Fork Valley is a “Cost-Plus Construction Agreement/Contract.” The purpose of the Cost-Plus Construction Agreement is to minimize risk for all parties involved in a construction project including, most importantly, the customer. The agreement also protects the builder and all the subcontractors + suppliers involved in a project. Also included in the agreement are Plans/Specs and a detailed Project Budget. An architect normally supplies the Plans and Specs, and the builder provides the Project Budget. These three documents – 1. the Cost-Plus Construction Agreement, 2. the Plans & Specs and 3. the Project Budget – are all reviewed, agreed upon and signed before work begins on any new project. Regarding the estimate aka the Project Budget, the Builder provides an estimate to the client for all the work to be performed. This estimate normally includes a weekly fee for managing the project. This fee is called the Project Management fee. Once the actual cost of the project is determined, the Builder adds his General Contractor (GC) fee to the bottom line. The GC fee is also referred to as the Builder’s profit and overhead. The GC Fee is a percentage of the total project cost (including the estimated Project Management fee). This percentage is normally between 10-20%. ● A lower GC fee structure applies to larger jobs including new construction, and projects where the scope of work is very clearly defined. ● A higher GC fee applies to more complex jobs, smaller jobs, and jobs where the scope of work is not clearly defined. Lastly, general contractors like McSwain Builders pass on the cost of General Liability Insurance to their customers. Insurance is a percentage of the total job cost, and it normally falls between 1.5% and 2% of the total project cost.

2. McSwain Builders - Custom Home Builders in Roaring Fork Valley Top 5 Ways Cost-Plus Construction Benefits Clients 1. Full Transparency in Project Costs ● Clients receive detailed breakdowns of expenses, including labor, materials, and other costs. ● This openness builds trust and ensures no unexpected charges. 2. Flexibility to Make Changes ● Clients can modify the design, materials, or project scope as needed without renegotiating the entire contract. ● This is especially beneficial for custom or high-end projects where preferences may evolve. 3. High-Quality Results ● Contractors are not bound by a fixed budget, allowing them to prioritize quality. ● Clients can choose premium materials or designs knowing they’re paying only the actual cost.

3. McSwain Builders - Custom Home Builders in Roaring Fork Valley 4. Fair and Collaborative Relationship ● Cost-plus promotes a partnership between the contractor and client, with shared accountability for the project’s success. ● Contractors focus on delivering value rather than working within rigid cost constraints. 5. Cost Efficiency ● Clients avoid paying a contingency markup that’s often built into fixed-price contracts. ● This model rewards efficient project management, potentially reducing overall costs. The most common method to secure a relationship between a Builder/General Contractors and a customer in the Roaring Fork Valley is a “Cost-Plus Construction Agreement/Contract.” The purpose of the Cost-Plus Construction Agreement is to minimize risk for all parties involved in a construction project including, most importantly, the customer. The agreement also protects the builder and all the subcontractors + suppliers involved in a project. Also included in the agreement are Plans/Specs and a detailed Project Budget. An architect normally supplies the Plans and Specs, and the builder provides the Project Budget. These three documents – 1. the Cost-Plus Construction Agreement, 2. the Plans & Specs and 3. the Project Budget – are all reviewed, agreed upon and signed before work begins on any new project. Regarding the estimate aka the Project Budget, the Builder provides an estimate to the client for all the work to be performed. This estimate normally includes a weekly fee for managing the project. This fee is called the Project Management fee. Once the actual cost of the project is determined, the Builder adds his General Contractor (GC) fee to the bottom line. The GC fee is also referred to as the Builder’s profit and overhead. The GC Fee is a percentage of the total project cost (including the estimated Project Management fee). This percentage is normally between 10-20%. ● A lower GC fee structure applies to larger jobs including new construction, and projects where the scope of work is very clearly defined. ● A higher GC fee applies to more complex jobs, smaller jobs, and jobs where the scope of work is not clearly defined.

4. McSwain Builders - Custom Home Builders in Roaring Fork Valley Lastly, general contractors like McSwain Builders pass on the cost of General Liability Insurance to their customers. Insurance is a percentage of the total job cost, and it normally falls between 1.5% and 2% of the total project cost. Source: https://mcswainbuilders.com/cost-plus-construction/ Contact us:(970) 309-6911 | Email: frank@mcswainbuilders.com Visit us: Instagram | Facebook | Google | LinkedIn