Cost plus construction contract template

This article explores the ins and outs of what a cost plus construction contract is, when you might use one, and how to manage these agreements efficiently using contract management tools like Juro.

What is a cost plus construction contract?

A cost plus construction contract is an agreement where the client agrees to cover the actual costs of the project plus an additional fee to the contractor. This fee may be a fixed percentage of the costs, a fixed amount, or a combination of the two. This type of contract is commonly used in construction projects where the scope of work is not well-defined from the outset.

How do cost plus construction contracts compare to other agreements?

Cost plus construction contracts reimburse all project costs plus a fixed fee or percentage for profit, offering flexibility for projects with uncertain scopes.

They are different to time and material contracts, which also provide adaptability for undefined scopes but instead pay contractors based on actual labour hours and material costs. By contrast, lump sum construction contracts set a predetermined total cost regardless of actual expenses incurred.

What is the purpose of a cost plus construction contract?

The main purpose of a cost plus construction contract is to provide flexibility in project execution. These contracts are ideal for projects with uncertain scopes or for projects that require extensive customisation. By covering actual costs plus a fee, clients can make sure that contractors have the necessary resources to complete the work to the required standard without cutting corners.

Who manages cost plus construction contracts?

Cost plus construction contracts are typically managed by:

• Project managers, who oversee the day-to-day operations, ensure that the work is progressing as planned, and manage the budget.
• Contractors, who perform the actual work and provide detailed records of all costs incurred.
• Clients, who monitor the project’s progress and costs to ensure that the contractor is adhering to the agreed-upon terms.

When are cost plus construction contracts used?

Cost plus construction contracts are used in several scenarios:

• When projects are complex and the full scope of work cannot be determined upfront.
• In environments where site conditions are unpredictable and may require changes to the scope of work.
• When projects require a high degree of customization that makes it difficult to estimate costs accurately.
• For innovative projects involving new technologies or methods where costs are uncertain.

What should a cost plus construction contract template include?

A comprehensive cost plus construction contract template should include the following elements:

Parties involved. Names and addresses of the client and contractor.

Scope of work. Detailed description of the work to be performed.

Cost definitions. Explanation of what costs will be covered (labour, materials, equipment, etc.).

Fee structure. How the contractor’s fee will be calculated (percentage of costs, fixed fee, etc.).

Payment terms. Schedule and method of payments.

Schedule. Project start and end dates, including milestones.

Change orders. Procedures for handling changes to the scope of work.

Liability and indemnification. Responsibility for damages or delays.

Insurance requirements. Types and amounts of insurance the contractor must carry.

Termination clause. Conditions under which the contract can be terminated by either party.

Dispute resolution. Methods for resolving disputes, such as arbitration or mediation.

Confidentiality and data protection. How confidential information and personal data will be handled.

How are cost plus construction contract templates typically managed?

Managing cost plus construction contract templates involves several steps:

1. Template creation – drafting a template that includes all necessary elements and is adaptable to various projects.
2. Approval process – ensuring the template is reviewed and approved by legal and project management teams.
3. Customization – adjusting the template to fit the specifics of each new project.
4. Execution – getting the contract signed by all parties.
5. Storage – keeping the contract in a secure, accessible location.
6. Monitoring – regularly reviewing the contract to ensure compliance and managing any changes or disputes that arise.

Why is it difficult to manage construction contracts?

Managing construction contracts can be challenging due to several reasons:

• Complexity: Construction projects often involve numerous stakeholders, phases, and changing conditions.
• Documentation: Maintaining detailed records of all expenses and changes can be time-consuming and prone to errors.
• Communication: Ensuring clear communication among all parties to avoid misunderstandings and disputes.
• Compliance: Adhering to legal and regulatory requirements across different jurisdictions.
• Risk management: Identifying and mitigating risks that can impact project timelines and budgets.

Manage cost plus construction contracts in Juro

Fortunately, managing cost plus construction contracts can be streamlined with Juro’s platform. Here’s how Juro can help:

Self-serve contracts

Juro empowers your team to self-serve on simple contracts. This frees up your legal team to focus on more complex issues, improving overall productivity. With Juro, non-legal teams can generate, review, and approve construction contracts using templates customised to your specific needs.

Contract workflow

Juro speeds up the entire contract lifecycle. You can automate contract drafting, negotiation and approvals, reducing the time it takes to agree on terms. Juro’s contract AI tools help identify key contract terms and risks – making negotiations faster and more efficient.

Contract repository

Store your construction contracts in Juro’s data-rich contract repository. With all contracts in one place, you gain unparalleled insight into contract risks and obligations. Juro’s search and reporting features allow you to quickly find and review contracts, ensuring compliance and managing renewals effectively.

Benefits of managing contracts with Juro

Cost plus construction contracts offer flexibility for complex and customized projects but managing them can be challenging. A well-drafted template is essential for clarity and compliance. Using Juro for managing these contracts simplifies the process, reduces risks and enhances efficiency, enabling your business to scale effectively.

For more information on how Juro can transform your contract management process, check out this guide to Construction Contract Management Software.

Juro’s AI-native contract automation platform empowers all teams to create, agree, execute and manage contracts up to 10x faster than traditional tools. To find out more, hit the button below to book your personalized demo.