Contract Price Explained: Cost of Work Done Plus Percentage in Case of?
When entering into a contract, it`s important to understand how the price of the work is determined. Contract price is the agreed-upon sum that a contractor will receive for completing a project. The formula used to calculate the contract price is typically the cost of work done plus a percentage in case of contingencies.
The cost of work done refers to the direct expenses associated with completing the project. This includes materials, labor, and other costs directly related to the project. This cost is often estimated before the project begins, and is based on the expected amount of work that will need to be done.
However, there are often unforeseen circumstances that arise during a project that can increase the cost of work done. This is where the percentage in case of contingencies comes into play. This percentage is added to the cost of work done to cover any additional expenses that may arise during the project.
For example, let`s say a contractor agrees to complete a roofing project for $10,000. The cost of work done for the project is estimated to be $8,000, leaving $2,000 for contingencies. If the project goes smoothly, the contractor will receive $10,000 for completing the project. However, if unexpected expenses arise during the project, the contractor will be compensated for those expenses up to the $2,000 contingency amount.
It`s important for both parties to clearly understand the contract price and how it is calculated before beginning the project. This can prevent misunderstandings or disputes that may arise during the project.
In addition, it`s important for the contractor to accurately estimate the cost of work done and contingencies to ensure that the contract price is fair and profitable. Underestimating the cost of work done or contingencies can lead to financial losses for the contractor.
In conclusion, contract price is calculated by adding the cost of work done to a percentage for contingencies. This formula ensures that both parties are protected in case unexpected expenses arise during the project. Clear communication and accurate estimation of costs are key to a successful contract agreement.