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Design/Construction Costs Plus Fee

ADVANTAGES

bulletContractor adds lower than normal percentage of all costs for his over head and profit.
bulletFixed or decreasing fee basis removes contractors’ incentive to increase costs or cut quality.
bulletOwner profits from cost reductions.
bulletConstruction time is reduced by concurrent engineering completion. Low engineering costs due to short term engineering effort limited to project needs only.
bulletOwner retains control of cost and schedule.
bulletScope changes are handled expeditiously.
bulletOwner caused schedule interruptions generally result in crew reductions or reassignment with minimum cost impact.

LUMP SUM

ADVANTAGES

bulletCompetitive biding assures low cost option and advance knowledge of costs.
bulletContractor assumes cost overrun risk.
bulletUse of reliable contractor results in minimal owner supervision.
DISADVANTAGES

bulletCost cannot be entirely predetermined. This may be minimized by competitive bidding of subcontractors and material suppliers.
bulletOwner assumes cost and schedule risks.
bulletKeeping costs low is dependent on integrity of contractor.
bulletAccounting of time sheets and material used is required.

LUMP SUM

DISADVANTAGES

bulletEngineering must be 100% complete for effective bidding.
bulletContractor’s risk protection allowance adds 20-30% to estimated cost.
bulletContractor may attempt to cut quality to maximize profits.
bulletCost reductions are not returned to owner.
bulletOwner changes to scope may be overpriced.
bulletOwner schedule interruptions may result in cost escalation.

 

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