A Contingency Contract: Is It Right for Your Remodeling Project?

By Brett Schoolnick



Often, remodeling clients are either confused about or unaware of the differences between a "time and materials" contract (or the related "costs plus" contract) and a straight "bid" contract.

Bearing that point in mind, here are the three basic ways that one can contract for remodeling services:

* A "time and materials" contract is one in which the labor rate is negotiated on an hourly basis (that includes overhead and profit), including all subcontractors, while materials are billed at cost. A variation of this type of contract is the labor-hour contract. In this type of deal, materials are not supplied by the seller, but other costs are agreed to as in time and materials contracts.

* A "costs-plus" contract is one in which the costs to the contractor are forwarded to the customer for payment with a stated percentage of profit.

* A "bid" contract is one in which the contractor provides a specific total bid for the project and work to be accomplished, with no additional fees or "profit percentages." This method, while best for the consumer, is sometimes difficult, painstaking and requires many hours of upfront estimating, taking many complex factors into consideration.

Estimating remodeling projects can be very difficult. Admittedly, there are projects and occasions when the time and materials or cost-plus contract might be appropriate, but they are few and far between.

Occasionally, projects that are extremely complex or have large "unforeseens" (e.g., uncertainty of existing structure or potential for an infrastructure replacement that might exceed expected requirements) might call for a contract with time and materials or cost-plus contingencies.

However, if you feel that the argument exists for a time and materials (or cost-plus) contract, it is wise to ensure that the contract include a fixed, "not to exceed" clause (which provides you with a "worst case scenario") and a clause that allows you to recoup any "savings" on the fees if the project comes in costing less than expected.

Further, it is critical that, if you accept any contract other than a fixed "bid," none of the subcontractors or vendors know that the project has been priced on a time and materials or cost-plus basis. Only you, the homeowner and the remodeling company has any need to know this information.



Brett Schoolnick is president of Baywood Design/Build Group in Columbia. He can be reached at 410-997-6363 or brett.schoolnick@verizon.net.