What is a Cost Plus or Fixed Fee Construction Contract in Oregon?

Definition & Meaning

A cost-plus construction contract in Oregon is a type of agreement where the contractor is reimbursed for all project costs, including labor, materials, and subcontractor expenses, plus an additional fee. This fee can be a fixed amount or a percentage of the total costs. This contract type is particularly useful for projects where the scope is not well-defined, allowing for flexibility as the project evolves. In contrast, a fixed-fee contract, also known as a lump sum contract, establishes a single total price for the entire project, transferring the risk of cost overruns to the contractor. Both contracts legally bind the involved parties, but they cater to different project needs and risk tolerances.

Key Elements of the Construction Contract

Understanding the key elements of both cost-plus and fixed-fee contracts is essential for effective project management. The main components include:

• Scope of Work: Clearly defining the project scope is crucial, especially for fixed-fee contracts, to avoid disputes later on.
• Cost Structure: For cost-plus contracts, detail how costs will be tracked and reported, including any allowable expenses.
• Fee Structure: Specify whether the contractor's fee is a fixed amount or a percentage of costs, and how it will be calculated.
• Payment Terms: Outline the payment schedule, including milestones or intervals for payments based on completed work.
• Change Orders: Include procedures for handling changes in project scope or costs, which are common in cost-plus contracts.

How to Use the Construction Contract

To effectively use a cost-plus or fixed-fee construction contract in Oregon, follow these steps:

• Determine Project Type: Assess whether the project scope is well-defined or likely to change, guiding the choice of contract type.
• Draft the Contract: Use a construction contract cost-plus or fixed-fee template to ensure all necessary elements are included.
• Review with Legal Counsel: Have a lawyer review the contract to ensure compliance with Oregon laws and regulations.
• Sign the Contract: Both parties should sign the agreement, ensuring all terms are understood and accepted.
• Monitor Progress: Regularly review project costs and progress to ensure alignment with the contract terms.

Examples of Using the Construction Contract

Consider these practical scenarios to illustrate the application of cost-plus and fixed-fee contracts:

• Cost-Plus Example: A homeowner wants to remodel their kitchen but is unsure of the final design. They opt for a cost-plus contract to allow for flexibility in design choices and materials as the project progresses.
• Fixed-Fee Example: A developer plans to build a new office complex with a clearly defined scope. They choose a fixed-fee contract to ensure the contractor completes the project within a set budget, minimizing financial risk.

Important Terms Related to Construction Contracts

Familiarity with key terms enhances understanding of construction contracts. Some important terms include:

• Change Order: A formal request to modify the original contract terms, often due to scope changes.
• Retainage: A portion of the payment withheld until project completion to ensure contractor performance.
• Subcontractor: A third-party contractor hired to complete specific parts of the project.
• Indemnification: A clause that protects one party from liability or loss caused by the other party's actions.

State-Specific Rules for Construction Contracts

Oregon has specific regulations governing construction contracts. Key points include:

• Licensing Requirements: Contractors must be licensed and registered with the Oregon Construction Contractors Board.
• Disclosure Requirements: Contractors must disclose any potential conflicts of interest and provide transparent cost estimates.
• Consumer Protection Laws: Oregon law includes protections for consumers, ensuring contracts are fair and transparent.

How to Fill Out the Construction Contract

Filling out a construction contract requires careful attention to detail. Here’s a step-by-step guide:

• Identify Parties: Clearly state the names and contact information of both the contractor and the project owner.
• Define Scope: Describe the project scope in detail, including timelines and deliverables.
• Outline Costs: Specify the cost structure, including all reimbursable expenses for cost-plus contracts or the total fixed fee for fixed-fee contracts.
• Include Payment Terms: Detail the payment schedule and any conditions for payment.
• Signatures: Ensure both parties sign and date the contract to make it legally binding.

Who Typically Uses These Contracts?

Cost-plus and fixed-fee contracts are commonly used by various stakeholders in the construction industry, including:

• Homeowners: Individuals undertaking residential projects often prefer cost-plus contracts for flexibility.
• Commercial Developers: Businesses may use fixed-fee contracts for projects with a clearly defined scope to control costs.
• Government Entities: Public agencies may utilize cost-plus contracts for projects where costs are difficult to estimate upfront.
• General Contractors: They often choose the contract type based on project requirements and client preferences.