Cost Plus vs- Time & Material
Cost Plus vs- Time & Material
The prior contracts with Vesta, our amenities provider, negotiated by the previous board were Time & Material contracts, sometime from ~ FY 19 and all of FY20 & 21.
With a T& M contract Keeping track of time and how much money is being allocated for specific materials can be a real drag on productivity. There’s no benefit for the contractor being efficient, If payment is being made based on time, then there’s little incentive to finish a job quickly. Plus, we have to front our own costs which is an expensive endeavor, and it can be risky if disputes arise. Often, these jobs work on a reimbursement basis, so a contractor will purchase the necessary materials and bill the owner later. On paper, it’s a pretty good system, In practice, the Gov’t might question whether some materials are necessary or if they’re being even being used on the job. Thus the Gov’t is pretty much stuck with paying out a T&M contract in full.
The Harbor Bay CDD rightly turned away from a T& M contract model and entered into a Cost Plus contract with Vesta, our amenities contractor for FY22, which is standard for ongoing projects. In cost plus it provides a degree of flexibility to the contractor, In many cases cost plus results in more efficient use of the funding and thus a lower price.
Here is a short synopsis and standard language regarding these two types of contracts:
What is a Time & Material Contract?
Another common costing structure for construction-related projects is a time and materials (T&M) contract. Under this contract, no preset fixed cost is set and the client and contractor agree to specified unit rates (usually at hourly rates) for labor and materials at-cost. A time and materials contract poses a high risk for the client and the least risk for the contractor if a limit is not established as to how much the project will cost or how long it will take.
The contractor will then track both the materials they buy and the time they spend on the project. All of their costs including administrative, direct labor, and transportation expenses must be indicated in their track record.
Advantages of a Time and Materials Contract
- One advantage of this contract type allows the client to modify the project whenever they desire.
- It can save time, allowing the project to be completed within the shortest period of time possible.
- It minimizes the risk of paying too much for the project.
What is a Cost Plus Contract?
How cost plus contracts work is simple: the contractor is paid for all relevant costs of the project PLUS a specified profit. The amount of profit is usually a fixed amount and does not change regardless of the actual project cost. In most cases, this type of contract sets a win-win situation for both the client and contractor, as it eliminates the risks and all expenses are likely to be covered.
Under this contract, the contractor can reimburse all expenses related to the project, but he or she must be able to justify the claim and provide evidence to prove it. Further, a cost plus contract may deny a contractor the payment of associated costs if a negligent act or error on the contractor’s part is determined.
Advantages of a Cost Plus Contract
- The contract can cover all expenses incurred.
- It minimizes project risks.
- It can allow the parties involved to focus on quality rather than the cost.