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Michigan Home Improvement or Remodeling Construction Contract - Cost Plus Basis of Payment

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US-02023BG
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A cost-plus contract is one in which the purchaser agrees to pay the cost of all labor and materials plus an amount for contractor overhead and profit (usually as a percentage of the labor and material cost). This type of contract is often used when the scope of the work is undermined or highly uncertain and the kinds of labor, material and equipment needed are also uncertain. It is important that the contractor maintain complete records of all time and materials spent by the contractor on the work.


This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.

A Michigan Home Improvement or Remodeling Construction Contract — Cost Plus Basis of Payment is a legally binding agreement between a homeowner (referred to as the "Owner") and a contractor (referred to as the "Contractor") for the provision of construction services and improvement works in Michigan. This type of contract is specifically based on a cost plus basis of payment, which means that the contractor is entitled to receive reimbursement for all the actual costs incurred during the project, plus an additional fee or percentage for profit and overhead expenses. In this contract, it is important to define the scope of work to be performed, including specific details such as the types of improvements or remodeling to be done, materials to be used, and the specific areas or rooms involved. This ensures that both parties have a clear understanding of the project requirements. The contract should also specify the compensation structure, outlining how the contractor will be paid. There are different types of Michigan Home Improvement or Remodeling Construction Contract — Cost Plus Basis of Payment, including: 1. Fixed fee: The contractor charges a prepared fixed fee for their services, which covers both the actual costs and the profit and overhead expenses. This approach provides a clear understanding of the project's total cost from the start. 2. Percentage fee: The contractor charges a percentage fee based on the total project cost. For example, if the agreed percentage fee is 15% and the total project cost is $100,000, the contractor would receive an additional $15,000 as profit and overhead expenses. 3. Cost plus negotiated fee: In this case, the actual costs are reimbursed to the contractor, and the profit and overhead expenses are negotiated separately between the homeowner and the contractor. This type of contract offers flexibility in determining the profit margin and overhead costs. The contract should also address other important terms and conditions, including: — Timeline: The estimated start and completion dates of the project, including any potential delays or extensions. — Permits and licenses: The responsibility of obtaining necessary permits and licenses required for the project. — Changes and additional work: Procedures for handling changes or additional work that may arise during the project, including the process for obtaining written approval and adjusting the payment terms. — Insurance and liability: The contractor's liability insurance coverage requirements and any waiver or release of claims from the homeowner. — Dispute resolution: Procedures for resolving any disputes or claims that may arise during the project, such as mediation or arbitration. It is crucial to have a Michigan Home Improvement or Remodeling Construction Contract — Cost Plus Basis of Payment in place to protect both the homeowner and the contractor. This contract provides a transparent framework for the project's cost and ensures that all parties are on the same page regarding the scope of work, payment terms, and other important aspects.

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FAQ

Cost Plus Contract AdvantagesHigher quality since the contractor has incentive to use the best labor and materials. Less chance of having the project overbid. Often less expensive than a fixed-price contract since contractors don't need to charge a higher price to cover the risk of a higher materials cost than

Some advantages of a CPFF contract can include: The final cost may be lower than in a normal contract, as the contractor usually will not inflate prices to cover risks. The contractor also has less incentive to control the project costs (in contrast to other types of contracts, such as a fixed-price contract)

plus contract, also known as a costreimbursement contract, is a form of contract wherein the contractor is paid for all of their constructionrelated expenses. Plus, the contractor is paid a specific agreedupon amount for profit. That's the plus!

plus fixed fee contract is a specific type of contract wherein the contractor is paid for the normal expenses for a project, plus an additional fixed fee for their services. These allow the contractor to collect a profit on the project, and they encourage economic production in various industries.

Cost-plus contracts are generally used if the party drawing up the contract has budgetary restrictions or if the overall scope of the work can't be properly estimated in advance. In construction, cost-plus contracts are drawn up so contractors can be reimbursed for almost every expense actually incurred on a project.

What Is a Cost-Plus Contract? A cost-plus contract is one in which the contractor is paid for all of a project's expenses plus an additional fee for the job. The additional fee is intended to be the contractor's profit.

Cost-plus contracts are generally used if the party drawing up the contract has budgetary restrictions or if the overall scope of the work can't be properly estimated in advance. In construction, cost-plus contracts are drawn up so contractors can be reimbursed for almost every expense actually incurred on a project.

Components of a Cost-Plus ContractDirect costs include the materials, equipment, supplies, and professional consultants the general contractor used. Overhead costs, also referred to as indirect costs, are business-related expenses that must be incurred to carry out the stipulations of the contract.

When the parties are proactive in the formation and negotiation of the agreement, the cost-plus contract can be a beneficial contract for both parties.

Advantages for project ownersThe predictability of lump sum contracts is the primary benefit to project owners. The owner can expect the project to be completed within budget and often more quickly so that the contractor can maximize resources and save on labor costs.

More info

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Michigan Home Improvement or Remodeling Construction Contract - Cost Plus Basis of Payment