Contracts: Types of Building Contracts

There are two primary types of building contracts in
residential construction. A "Fixed Cost" contract
and a "Cost-Plus" contract.

Heartland Builders prefers a Fixed Cost contract. This
contract protects the customer from runaway costs and it
protects Heartland Builders by predetermining the work
that is desired.

This is a contract where the price of the home is pre-set based on the construction drawings and the material and labor required to build the home. The builders fee is included within the price of the home.

Is the price really fixed? Yes, but there are some variables which may change the price. What are those?

1. Excavating costs due to soil conditions. It is not always possible to predict what type of soils you will find below the ground. You may have to haul a type of soil in (black dirt, sand or gravel) or haul soil out (clay for example).

2. If your site requires a well (not municipal water) then we cannot guarantee the depth of the well.

3. If your site requires a septic system (not municipal sanitary sewer) then we cannot guarantee the cost of installing the septic system until we are able to determine the soil conditions below the ground.

Other than those three variables, we can accurately predict the cost of building a home. For those three variable items we make every attempt to accurately predict their costs (in advance of construction) by communicating with the local health department, talking to others in the neighborhood that have built or some other method.

As you can see from this method, we guarantee the majority of the cost of the home. Probably 95% to 98% of the costs. We guarantee the amount of lumber, wood, siding, paint, etc..... Under this contract the customer does not have to worry about the variability of pricing or the amount of materials used or unused.

What else can affect the cost of construction when using a Fixed Cost contract? Change orders and customer selections. Both items are under the customers control.

Again, we believe that this type of contract provides the customer with the greatest amount of protection. We like it also because it helps us properly budget and it sets the scope of work in advance of construction. We like that!

A Cost-Plus contract is open ended with no final dollar amount predetermined, either because the project is fast-tracked or the scope of work has not been determined. In addition to the costs of the home, the builder's fee is added to the total costs as a % of the cost.

Please know that the "Costs" under a Cost-Plus contract includes EVERYTHING that goes into building the home. Not just lumber and such, but the builders cost of driving to and from the jobsite, the labor cost of the builder to supervise the job, and all other "soft" costs of construction. On top of these "soft" costs and the "hard" costs (materials) a customer will pay the builders percentage to manage the job.

This type of contract is commonly used in high end residential construction when the work is highly customized. It is used becuase highly customized work can be impossible to estimate from a cost standpoint. Drawing it is one thing, building it is another.

The other time it is used is when a customer does not make their decisions in advance of construction. Without a predefined scope of work it is difficult to determine what needs to be done.

Again, we prefer the Fixed Cost contract. We require our customers to make their decisions in advance of construction. We want our customers to "Build with Confidence." To do that, we feel you have to know how much your home is going to cost before you break ground.

Thank you for taking the time to visit our blog. If you came to our blog from a source other than our website, please visit us at www.heartlandbuilders.com. We will be glad you did.

Build On! Build well! Love your builder!