Florida Building Contractor Business/Finance Practice Exam

Most negotiated construction contracts are typically based on which payment method?

1. Fixed price

2. Cost plus fee

3. Unit price

4. Time and materials

The correct answer is: Cost plus fee

Negotiated construction contracts are typically based on the cost plus fee payment method because this arrangement allows for flexibility and collaboration between the contractor and the client. In a cost plus fee contract, the contractor is reimbursed for all legitimate project costs incurred during construction, such as materials, labor, and overhead. Additionally, the contractor receives a fee, which may be a fixed percentage of the costs or a predetermined amount. This type of contract is particularly suited for projects where the scope is not fully defined at the outset or for complex projects with uncertain costs, as it encourages more open communication regarding expenses and allows for adjustments as the project progresses. Clients may find this method beneficial because it aligns the contractor's incentives with the project’s success; however, it requires trust that the contractor will manage costs wisely. This makes the cost plus fee method common in negotiated contracts, as both parties can agree on a fair approach without the rigidness of fixed pricing or unit pricing systems.