Payment for Extra Work - Cost Plus Fee

It's finally here, fall! My favorite time of year when we change from hot humid days to cooler days and sleeping with the windows open. Speaking of changes, this month, as part of a look into the "Construction Alliance" and the "Construction Guidelines", we will discover a way to pay for extra work or changes on the construction site. The October guideline of the month is another short one, but important to Owners and Contractors. When additional work is required on a job, one way to pay for the work is Cost Plus Fee. The Guideline "Payment for Extra Work - Cost Plus Fee" provides the basis for covering the costs in this way.

What is Cost Plus Fee? 

Cost Plus Fee is essentially paying for actual work completed and paying the Contractor a fixed fee for overhead and profit, which has been negotiated or stipulated prior to the start of the work. The percentage of the cost for the fee must be stated in the Project Manual or agreed upon prior to start of construction to prevent potential disputes during the course of the Work. In short, it is paying for time and material (actual costs), plus overhead and profit.

Why is Cost Plus Fee important?

During the course of construction, unforeseen stuff happens. The Contractor may run into an issue that was previously unknown. The Owner may see something that needs to be changed. There are many potential reasons for a change on the project site. Utilizing a payment method of Cost Plus Fee is a fair way to guarantee the Contractor their costs for overhead and profit while protecting the Owner from being charged an excessive amount of overhead & profit during the course of construction.

When and how is Cost Plus Fee Used?

Let us assume for a moment that during the construction of your dream home, the contractor has framed all of the walls and roughed in the electrical work. This was done properly according to the documents and as agreed upon. During a walk through you decide that the master bedroom is too small and that the master bath should be reduced in size to make the bedroom larger. Instead of asking for an estimate of cost from the Contractor, you authorize the Contractor to move the wall three feet and you agree to pay him for actual cost, plus the agreed upon fee.

This helps keep the project moving forward because the Contractor does not have to stop working on your house to go figure the price, present it to you, get your approval, order whatever is needed and do the work. It is fair to the Contractor who does not have to reallocate resources and possibly underestimate the cost of the work and lose money. It is fair to you (Owner) because the work continues with minimal disruption and possibly being over estimated by the Contractor.

Who verifies is Cost Plus Fee?

 Ultimately, the Owner and the Contractor will agree upon the final cost. However, when an Architect or Engineer is involved on larger projects, they may verify the work prior to suggesting approval for a Change Order. This is done simply by asking the Contractor to present daily work tickets identifying the additional scope, amount of time spent and materials used. Once these are added up, the fee is applied, and a Contract Change Order is written.

Please make certain to read the guideline "Payment for Extra Work - Cost Plus Fee", and if you have any comments, please let me know. Next month join me as we discuss the "Preconstruction Conference".

Till next month…

Steve Gantner RA, CSI, AGCMO, SCIP, CCS, CCCA

Senior Specifier - Conspectus, Inc.