What are the advantages and disadvantages of cost plus pricing?

It takes few resources. It provides full coverage of cost and a consistent rate of return. It hedges against incomplete knowledge. It's horribly inefficient. It creates a culture of profit losing isolationism. It doesn't take into account consumers.

US Legal Forms
Maryland Construction Contract Cost Plus or Fixed Fee

Construction Cost Plus Contract

Name: Maryland Construction Contract Cost Plus or Fixed Fee
Brand: US Legal Forms
Price: 59.00 USD
Rating: 4.74 (468 reviews)

Category:

Maryland Construction - Contractors

State:

Maryland

Control #:

MD-00462

Format:

Instant download

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Description Construction Contract Plus

This form is a Construction Contract that may be executed with either a cost plus or fixed fee payment arrangement. The form contains the following additional subject matters and complies with the laws of the State of Maryland: scope of work, work site, warranty and insurance. This form is not for use to build a new home or custom home. See MD-00462A to build a new home or custom home.

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Contract Cost Plus Fixed Fee Form Rating

4.74

Satisfied(468)

Md Construction Contract Form popularity

Contract Plus Fixed Other Form Names

Contract Fixed Fee Construction Contract Cost Maryland Construction Contract Maryland Contract Fee Maryland Contract Plus Construction Cost Plus Construction Contract Fee

Construction Cost Fixed FAQ

Cost-plus-fixed-fee tends to me more advantageous to the buyer as opposed to the seller as it caps the fee and the fee will not swell or grow based on the future expansion or fluctuations of the budget. However, it also can protect the seller because, in the event the budget tightens, it provides a fixed fee.

Disadvantages of cost-plus fixed-fee contracts may include: The final, overall cost may not be very clear at the beginning of negotiations. May require additional administration or oversight of the project to ensure that the contractor is factoring in the various cost factors.

Cost Plus Contract Disadvantages For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way.

Disadvantages of fixed-price Therefore the biggest issue is usually around project scope and change requests. Lack of flexibility. A fixed-price project has a defined scope (requirements). As the cost cannot change, the scope of work is much less flexible.

In the cost plus a percentage arrangement, the contractor bills the client for his direct costs for labor, materials, and subs, plus a percentage to cover his overhead and profit. Markups might range anywhere from 10% to 25%.

A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract's full price.

Advantages of Cost-Plus Contract to the Contractor: (i) There is no risk of loss arising from changing prices, wrong estimates and underestimated quotation.(ii) It provides an automatic or ready escalation clause, so that increase in cost is automatically adjusted and recovered; (iii) There is no bargaining problem.

It takes few resources. It provides full coverage of cost and a consistent rate of return. It hedges against incomplete knowledge. It's horribly inefficient. It creates a culture of profit losing isolationism. It doesn't take into account consumers.

Construction Cost Plus Contract

Description Construction Contract Plus

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Contract Cost Plus Fixed Fee Form Rating

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