Contract Vs. Time and Material
There are two ways that you can have a builder/contractor deliver you a price. One is a contract, (G.M.P guarantied maximum price), and the second is time and material. Below is a list of a few pros and cons for each.
This is the traditional method of doing business and in many cases is still in practice today. It is exactly what it states: guaranteed maximum price, meaning that as long as the drawings do not change and there are no extras added, the price to be paid when the job is finished will be the price quoted.
- Good for a set budget
- If you don’t know or trust your builder (refer to our guide “Selecting the Right Builder” to avoid disappointment)
- Ensures that the builder will get your job done in a speedy manner
- If no changes are to be made, this is a good option.
- Extras can easily be kept separate.
- Monthly payments can be arranged.
- Payments reflect work completed.
- Details may be overseen or ignored in order to meet a strict timeline.
- This method may tempt some builders to cut corners.
- Changes will ensure a significant “extras” bill at the end.
- The builder/contractor will add extra money to their quote as a buffer to protect them against unforeseen problems.
- Builder may become frustrated with changes. (Refer to our guide “Selecting the Right Builder” to avoid disappointment).
- The warranty may be difficult to claim.
- Confusion may arrise as to what work is the responsibility of the owner or builder and what has been paid for.
Time and Material (Cost plus)
This is the newer way of billing and a better choice when the clients are not sure of what they want and will change things along the way. This method is done by billing at a set rate per hour and adding a percentage to the cost of material and trades the builder uses.
- Gives the client time to work with the builder and make changes at their leisure
- Lets the owner see where every cent is going
- Ensures quality as the builder won’t cut corners to save money
- Allows the builder to give a more accurate quote
- Best option for a renovation
- Usually used as a method of billing for foundation work
- Payment schedule is easy to follow and the owner knows where they stand at the end of every month
- No surprise “extras” bill at the end of the job
- Some builders see this as an open-ended check. (Refer to our guide “Selecting the Right Builder” to avoid disappointment).
- Some builders will let the project drag on.
- More work for the builder and contractor to keep track of the paperwork, receipts, and bills