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Construction Pricing and Contracting Part 2

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Even the most seasoned contractors are often baffled by the sheer volume of knowledge required to skillfully handle construction pricing and contracting. If you feel like you’re losing out on your contracts, consult a Houston construction lawyer from Cotney Law to assist you with contract drafting, review, and negotiation.

In part one of this two-part series, our Houston construction lawyers introduced the topic of construction pricing and contracting by discussing some of the factors that influence pricing and the best procedures for submitting a competitive bid to procure lucrative contracts. Now, we will discuss negotiated contracts and speculative residential construction.

Negotiated Contracts

Unlike projects that seek out the best contractor through competitive bidding, private owners can opt to select a contractor directly. Negotiated contracts are more flexible with pricing arrangements and allow contractors more freedom when working on projects of substantial cost and complexity. Additionally, these contracts are ideal for repeated projects such as those that reuse apartment building design schemes. In this case, if one particular contractor has proven their efficacy with a past project, there’s little reason to seek another contractor unless price considerations come into play.

As a contractor, negotiated contracts can be extremely lucrative, especially if you are duplicating a past project. Calculating the price of a negotiated contract typically follows one of these methods:

  • Cost plus fixed percentage
  • Cost plus fixed fee
  • Cost plus variable fee
  • Target estimate
  • Guaranteed maximum price or cost

Speculative Residential Construction

When building houses or condominiums in new communities, contractors often build units prior to purchase. This is because contractors anticipate the demand of these units. If you build quality units, they will typically sell, so speculative residential construction can be quite lucrative. Plus, since there’s no fixed price of housing, you can scale the price to meet the current demand. Finding financing for these types of projects is relatively easy when working with lending institutions because these types of projects have been proven to make a considerable return on investment over time.

Whether you’ve been a contractor for two years or twenty years, it’s always smart to partner with a Houston construction lawyer to assist you with a broad range of services including bid proposals, bid disputes, contract review, contract negotiation, and more.

If you would like to speak with our Houston construction lawyers, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.