Bidding and Contracts
Contract types: Fixed price
The contractor agrees to complete specified work for a specified sum. Regardless of the contractor's actual cost to complete the work, the cost to the owner does not change. For example, a painter will paint the exterior of a house for $10,000. The contract will specify exactly what parts of the house will be painted, what preparation will be done, they type of paint to be used, how many coats, etc. Whether it takes the painter one week or three months to complete the work, the price will stay the same.
Contract types: Cost-plus
In this arrangement, the contractor is paid for the cost of the work, plus a percentage for profit and overhead. Cost is what the contractor actually pays out to his employees, subcontractors, and suppliers. The contractor makes money by marking up labor, materials, and subs according to an agreed percentage (typically 10-20%).
A cost-plus contract is essentially an agreement to reimburse the contractor for costs incurred while building your project. The contract can range from having no construction specifications to having as complete a set as a fixed-price contract. For example, hiring a painter "by the hour" and paying him for materials s/he purchases is a simple cost-plus contract. The amount of money paid to the contractor directly correlates to the time it takes to complete the job. While the contractors may provide a detailed estimated of both time and cost, they are not contractually bond to meet the estimate.
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