Comparing Quotes and Contracts

December 9, 2009 by admin  
Filed under Before You Build

Lock and Key Contract vs. Cost Plus Contract – There are two primary methods contractors use to structure a contract. Those operating under a guaranteed building price use Lock and Key Contracts. These contracts state that your home price will never exceed a certain limit. While this is often the most preferred by home owners, most contractors stay away from them because it favors the home owner and requires builders to take on greater risk. If the project goes over the contracted price the builder has to come out of pocket to finish the project.

Most contractors use the Cost Plus method of contracting which essentially states that the cost of the home will be the cost of the materials plus “whatever it costs” to install it. While there is always the upside of the contractor to finish in less time than he anticipated, there is also the downside of labor costs spinning out of control. There are often labor clauses in the contract to prevent complete disasters, but still use caution when using cost plus contracts to make sure you fully understand what you are committing yourself to and how “open ended” the contract is really.

Allowances – Some contracts will include allowances in their bid that accounts for a range of unknown circumstances. In home remodels these are commonly used because the contractor’s can’t see what’s behind the walls or below the floors. In new home construction they are often used as a placeholder for a dollar amount homeowners can spend on a project. For example, a contractor may give a $5,000 allowance for a bathroom. At the appropriate time, the contractor will physically give the homeowners a check for $5,000 to go and buy the materials for the bathroom. They will by the flooring, the shower, vanity sink and all the hardware. However much additional or below they spend is entirely up to them.

Custom Extras – There are times when home owners are going to want to change something after construction is underway. Any work that is done outside of the contracted scope is considered a custom extra. Contractors handle these changes in different ways. Some will give a set prices while others will charge an hourly rate plus materials for the changes. Additionally, most contractors will charge a contracting fee for the extra work. Check with your builder to see how they handle modifications to the plans.

Terms of Payment – The flow and distribution of funds should be determine in the contract. Every contractor handles their books differently so be sure to discuss how money will be handled. Never agree to pay in a lump sum. A better approach is to set up determined milestones and release the money in waves. We recommend scheduling the payments so that the LAST of the funds are paid out AFTER everything is to your liking. This keeps builders motivated and focused on completing your home.

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