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Q: differences between fixed price and cost type ( Answered,   1 Comment )
Subject: differences between fixed price and cost type
Category: Reference, Education and News
Asked by: reddie2-ga
List Price: $2.00
Posted: 30 Mar 2005 11:02 PST
Expires: 29 Apr 2005 12:02 PDT
Question ID: 502752
What are the differences between the provisions of the changes clause
for fixed price and cost type contracts?
Subject: Re: differences between fixed price and cost type
Answered By: weisstho-ga on 02 Apr 2005 21:27 PST
Hey again!

There probably aren't any differences in a well drafted and "fair"
contract. Certainly, from the owner's perspective, a fixed price
contract will encompass changes and the contractor will not be
separately compensated for those changes. But there has to be a limit
and that limit must be expressed in the Changes/Modifications section
of the contract.

Even in a time and material job, there may be a different basis for
charging for changes - for example, it wouldn't be unusual to imagine
a situation where the basic rate for the work is, say, $35/hour for
the base job, but changes could have a different rate - examples (1)
since all the men and equipment are there a rate of $28 may make sense
for increased work; but then again (2) perhaps since the changes would
be in a technical and costly area (finish woodworking) the rate for
changes in that area may be $45/hour.

An ideal modifications/change order clause would be based upon an
underlying contract that adequately identifies the work that is going
to be done - with a high degree of specificity - and indicates the
specific trades and the rates of compensation and mark-ups for
material for any change orders. This would apply to either a fixed
price or a time and material job.

How am I doing?  Additional questions - hit the clarification key!!

Subject: Re: differences between fixed price and cost type
From: jack_of_few_trades-ga on 30 Mar 2005 12:21 PST
The fixed price contract is easy.  The contract is signed specifying
an exact amount of money that will be given for the work.

The "cost type contract" as you called it usually shows a ballpark
figure of the expected amount of money, but there is a clause in it
that says that the actual amount will be dependant on the actual costs
that the contractor faces.  This type of contract takes the risk out
of the deal for the contractor.  He is guaranteed either a percentage
of the money (ie 10% over costs) or a fixed amount of money (ie
$15,000 over costs) as his profit.  These contracts legally must have
limits, because the government is not allowed to owe an indefinate
amount of money to anyone (a contract could potentially bankrupt the
government without such a clause).

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