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What is a cost-plus-fee contract in construction?

New Jersey has a great deal of construction underway and the agreement between the property owner and the contractor can be a complicated matter. It is inevitable that a contract dispute will sometimes arise and make it possible that litigation is necessary. When a construction developer comes to an agreement on a project, there are two different types of contracts that are generally in place for it. They are lump-sum contracts and cost-plus-fee contracts. This post will center on cost-plus-fee contracts.

With a cost-plus-fee contract, the owner of the property will pay the contractor for the work and fees for the overhead and profit. With this type of contract, the risk is mainly on the owner's side. The contractor is required to perform the work based on the agreement and requirements that were detailed at the outset. Since there can be numerous different factors that will influence a project as it is in progress, there will be a wide array of terms and conditions set out when the contract is agreed to.

A contractor that is bidding on a contracting job of this kind must make certain to understand and know everything that the contract entails. The contractor is expected to do the work in an economical way and be efficient to keep costs reasonable. The owner is required to pay for the work based on the agreement. This can lead to disagreements as the developer might have expected a certain result and the project did not come out as expected.

When conducting business of any kind in New Jersey, it is sometimes necessary to deal with contractors. These contracts can be difficult to organize as there are many different variables that come up - especially with development contracts and contracts for builders. Having legal advice from the start can be an essential factor in not only having the project turn out successfully, but in having protection from litigation. Hiring a law firm with experience in a construction contract is a must.

Source: realestate.findlaw.com, "Construction Developer's Responsibilities -- Cost-Plus-Fee Contracts," accessed on Nov. 22, 2017

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