We generally operate on two types of contracts: contract cost or cost plus. Contract cost means we give a total price on the cost of the project. Arriving at this price involves bringing in subcontractors and suppliers who give written bids based on the plans for the project. Any overages on allowances would have been paid on a change order during or at the end of construction and any money left over on allowances would have been credited at closing. Generally, we place allowances on plumbing and electrical fixtures, flooring, countertops, landscaping, hardware, front doors, and paint and texture changes.
On a cost plus contract, a final price of the project is bid the same as in a contract cost project and would include the same allowances. However, there is no profit and overhead figured into the final cost. Within the contract is a provision providing a percentage to be paid to the builder above the cost to build the home. Our percentage on a cost plus contract will vary by project. Another difference in a cost plus contract is that when the contract is signed, the client will receive a copy of the bid sheet used by the builder to arrive at the cost to build. At the end of every month during construction, we would compile all of the bills from that month, total them, apply our builder percentage, and turn in an invoice to the client. With this invoice, copies of all the subcontractor and supplier invoices for that month are included. Under this arrangement, allowances are guidelines the client would use to determine if they are above or below the estimated cost. Since bills are paid by the client monthly, there is no need for change orders.