Types of Construction Contracts
There are a two main Types of Construction Contracts that are used in residential construction.
- Fixed Price.
- Cost Plus.
Fixed Price (Lump Sum) types of construction contracts work very well for production type new construction homes where you select from a model home that the builder has built many times. After building a home plan a builder usually value engineers each home and takes supervisors and sub-contractors suggestions to save time and money the next time they build that model. For example, the first time I built a particular model of home I found that if I moved the front entry wall in 6″ to support a truss bearing point vs. expensive hand framing, engineering, materials and time to support that truss on the first home, I ended up saving $1,100 each time I built that model. And that savings can be passed on to the homeowner as incentive when comparing prices. One thing to think about when choosing a Fixed Price contract is making sure that everything that you want is in the contract and model you are choosing, after the fact types of changes are usually fairly pricey. If you are building a custom home and using a Fixed Price type of contract, the contractor is taking a much larger risk. This risk will translate into a higher price to build that home. If your trying to compare prices on a custom home (bid shopping) between contractors make sure your specifications sheets and plans are exceptionally thorough. This is putting the contractors in a position where they want to build your home but do not want to go broke doing it. The only thing to do if you want a cheaper price is to cut the quality of items in the home. One thing that residential contractors have taken from the commercial contractors is bidding “AS PER PRINT“. This means that even though you have a fixed price contract if you supplied the plan then you are liable for any changes or corrections needed to complete the project. In the commercial world it is common place for companies to bid at or below cost just to get the contract signed, knowing that there are a number of change orders that they have identified to make up for the overhead and profit they lost while bidding. To sum up, in my opinion, most of the time, a Fixed Price contract works well with production homes and not so well with custom homes.
Cost Plus (Time and Materials), there are two types of Cost Plus contracts Cost Plus a Percentage and Cost Plus a Fixed Fee. First of all, Cost Plus or Time and Material contracts are just that, any costs or materials needed to complete the project plus whichever method (fixed fee or percentage) will be the cost to the owner. This is the best method in my opinion for large custom homes for both the owner and the contractor. The owner is only paying for exactly what it takes to build the home exactly the way they want it for the exact cost plus the contractors fee. With a large custom home there are usually some complications somewhere that might end up costing the contractor and if he is taking no risk in paying for it out of his pocket, then he can negotiate a much lower overhead and profit margin that the Fixed Price contract. The difference in a Cost Plus a Percentage and a Cost Plus a Fixed Fee is that with the percentage sometimes costs tend to run out of control so the contractor can make more. With a Cost Plus a Fixed Fee contract the owner and contractor agree on a fixed amount of contractor compensation up front, which is sometimes referred to as a Negotiated Fee. A Cost Plus a Fixed Fee contract for large custom homes is ideal for both the owner and contractor. The owner can change as much or as many things they want in the home with no added contractors costs for managing the construction. The contractor is also involved in the project from the very beginning where he can value engineer the home to try to minimize any design issues or bring them to the owners or architects attention before the final drawings are complete, this can be a tremendous savings on a project.
Both of these homes were built using a Cost Plus a Fixed Fee Types of Construction Contracts.
one of many quick blogs to come
In Cinnamon Beach Resort.
Stull Construction Inc. is a family owned and operated construction company. Our area of service is Volusia, Flagler and some of St. Johns Counties. We strive to build strong homes to last through the tropical weather we experience here on the east coast of Florida. Using long lasting and energy efficient products to help you keep your maintenance and monthly expenses low will help give you a good return on your investment.
We are very experienced in Commercial, Residential and Condominium Remodeling.
Commercial construction with SCI will ensure that your project will come in on time and on budget. With many satisfied customers from our Commercial Projects we know how to help you value engineer your project. Some of our Commercial Build-Out projects have included Blue Wave Dermatology, Today Insurance Services, Ritter’s Ice Cream, Ocean Shore Medical Center and many other strip center or existing building projects. We have also Developed Turn-Key projects such as Oak Hill Fish Camp, Majestic Oaks Subdivision Phase 4 and many other smaller projects that required subdivision and recombination of lots.
Residential has always been at the forefront of our business. Although not as technical as Commercial or Condominium Remodeling, it brings new opportunities for us to shine. With new homes ranging from one bedroom, one bath mother-in-law apartments to 12 bedroom, 3-story oceanfront homes on narrow lots, we are ready for your project. Remodeling Kitchens and Bathrooms are a breeze for SCI. We have done many additions for that extra needed room. Hurricane / Safe-Rooms are a great idea for anyone with valuable items they want to protect, such as your pictures, jewlery to gun collections. We ensure that these are very solid structures. We build all of our Safe Rooms with solid poured concrete including a 6″ solid poured ceiling. Add a commercial 4 point locking door to your Safe-Room and your valuables will be safe from the weather or from thieves. We can also hide the entrance to your Safe-Room to make it that much more protected. Some of our most recent homes have been in Cinnamon Beach at Ocean Hammock Resort in Palm Coast Florida. The ammenities here are spectacular from the beach and multiple pools to the golf course. This is a gem of a private gated community. These homes range from 4 to 15 bedrooms. Most are either investor-owned or part-time owners that rent their homes weekly. With a less than 6 year Return on Investment these are great opportunities. We are also working on multi-partner deals for those who want to test the waters at Cinnamon Beach and buy while the prices are still low.
Condominium Remodeling takes much more experience and a willingness to go that extra mile to make everyone satisfied. In a Condo Remodel, you are not only dealing with the owner of one particular unit that you are doing work in, but everyone in the building. The logistics of getting materials to the 7th floor while making sure that the common area stays clean with no trace of a construction project after we finish for the day. This takes a special relationship between the subcontractors and the contractor to ensure that the project ends with a refferal for a job well done. Condominiums, being habitable commercial structures, need to have fire and life-saftey issues addressed. We have remodeled HUNDREDS OF CONDO UNITS. Trust us to do yours.
That is our link to our Facebook site. we have a lot of nice new pictures there. Please go there and like us so you can follow all of our new projects. We will also be updating the Facebook page and our website News feed with local events and happenings for our area.
“Our goal is to build a successful relationship with all of our clients while helping them build for their future.”
Michael J. Stull, Pres.
We will be featuring informative articles concerning construction news. Please check this portion of our website again. If you’d like to receive our newsletter, fill in the form. You can also subscribe to our RRS feed by clicking on the feed icon at the bottom of this page.
This is our Facebook Page.