The price must be just right! The all-important question is: How do you set your contract price and get it just right? As a roofing contractor, you know how important setting your fee is. Bidding too high may mean you lose out on contracts. On the flip side, bidding too low may incur financial losses for your company.
Naturally, the price needs to encompass all the costs you will suffer during this project, from materials to salaries paid to workers. While it may seem simple to come up with an exact price, that’s not nearly as easy. You should be aware of this. Sometimes, you will need to consult a professional who would make this sort of calculation to make it just right.
Another aspect, which is overcome by many contractors is the cost of insurance. If you require someone who can provide you with this sort of service, be sure to pay a visit to contractorsliability.com. You can be absolutely sure that this is a key factor that can prevent you from experiencing many headaches down the road.
As you can see, this is not something that should be treated lightly. It is a complex process that requires a lot of attention and knowledge to do it right. Construction contracts fall under various categories. In this quick guide, we will show you how to navigate a cost-plus fixed percentage contract, and talk about why this type of contract minimizes your risk.
How Do You Set Your Contract Price On A Plus Fixed Percentage Contract?
In a cost-plus fixed percentage agreement, you, as the servicer, charge the project owner for the direct and indirect costs incurred during construction. Of course, there are many perceptions you should utilize when coming up with the final amount. Make sure that all parts of the process are done properly to prevent any complications or misunderstandings with clients.
Naturally, you add a percentage on top to represent your profit. The agreement document must specify the percentage amount the owner pays you. The document you come up with is legal and binding, and those who don’t meet the requirements can be held responsible in front of the court. It doesn’t matter what party we’re talking about.
Cross-check the fine print so you know the precise costs covered in the construction contract, and if the cover is enough. If you do not address this, disagreements on expense claims may arise further down the line. For that reason, being as precise as you can be is an absolute must. So, arm yourself with patience and knowledge, and be prepared to invest your best efforts into making it work.
When Is A Cost Plus Fixed Percentage Contract Preferable?
As a roofing contractor, when should you consider using a cost-plus fixed-price agreement to set your worker price? Here are some circumstances where we recommend this kind of agreement:
- You must completely define the scope of the project, or else you cannot perform a detailed estimate of the construction project. It doesn’t mean that you shouldn’t be flexible with your work. However, this sort of freedom should have some boundaries that ensure the quality of the project.
- If the designs for the project are not complete. No matter what you do, coming unprepared is a no-no. For that reason, work on even the smallest of details until they are perfected.
- When a project owner has a constrained construction budget. Understanding how much money you can spend while you work on the project is a must. Sure, some changes that come along the way are possible. But, try to make them as minimal as possible.
What Are The Advantages Of A Cost Plus Fixed Percentage Contract?
There are advantages to setting your contractor price this way.
- It affords you as the contractor minimum risk since all your expenses are highly likely to be paid. We cannot stress how crucial this component is. It’s because your company will not suffer any sort of financial problems down the road.
- Affords you the leeway to use quality construction materials. Every individual who is in this business understands that having quality materials is equally as important as having competent workers.
- Minimizes your risks, such as unpaid expenses. No matter what sort of work you do, you prefer to get the payments you earned by finishing your project. There are many scenarios when receiving payment can become problematic. This is one of the ways you can prevent these problems from occurring, which is pretty important.
How To Secure Your Cost Plus Fixed % Contract
Keep detailed records on both direct and indirect costs during the construction project, with supporting financial documents. Since the homeowner pays all construction expenses, unclear records may result in unpaid amounts to the contractor or disputed claims that may need third-party mediation.
As a roofing contractor, this contract can work in your favor by offering affordable roofing material options to the homeowner, which in turn will lower your bid. Since the charges are based on the cost of materials, the purchase of excess materials results in wastage. An honest approach benefits the homeowner and builds your reputation.
Keep in mind that the construction contract might contain a ‘not to exceed’ stipulation. You may incur penalties for breach of the agreement. By doing that, it is possible to protect your best interests, in case some problems start to appear, for whatever reason.
How Does A Cost Plus Fixed Percentage Contract Impact On Your Liability?
Generally, you calculate a Builder’s Risk Insurance policy based on the cost of the construction project. If you over-purchase construction materials which in turn raises the cost of construction, you may pay higher premiums on your Builder’s Risk Insurance.
This can be minimized by keeping the cost of materials down, which is possible. The only thing that separates you apart from it is comparing the prices you come across and choosing the one that serves your needs and preferences the best.
As a roofing contractor setting up your contract pricing can be a challenge especially if you’re just new in the industry as well as organizing your finances because you want all to achieve a smooth cash flow of your trade services. And in order to attain this goal, you need help from certain mobile or web application which can make your financial management nice and easy similar to the Joist app.
The Bottom Line
Coming up with the right price is one of the most significant parts of the process. That’s why we’ve provided you with all the vital points that can help you with finding the ultimate solution. We’re sure you will find this insight quite helpful in your future endeavors.