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Construction is built around contracts; the word “contractor” itself is evidence of the pivotal role contracts hold. A construction contract is more narrowly defined as a written agreement between an owner and a bidder covering the performance of work, by which the owner is obligated to compensate the contractor according to the terms of payment. Two styles of contract are used almost exclusively in residential construction: Fixed Sum and Cost Plus Fee. These two styles have practical differences, and these differences may end up saving you or costing you lots of money. This article attempts to compare and contrast these two predominant contract types so that you can choose the one that best meets your project goals.

Fixed Sum Contract

A Fixed Sum Contract, also know as a Lump Sum or Stipulated Sum Contract, is a contract which provides that the home owner will pay the contractor a specified sum of money for the completion of a project. The amount to be paid is determined by the bid from the contractor. The bid is an official offer from the contractor to furnish all labor, equipment, materials, overhead and profit necessary to complete the specified project. For example, a remodeling contractor might offer a homeowner a bid of $30,000 to remodel their bathroom. This dollar amount is based on the budget a contractor plans for how much he thinks it will cost him to do the job and how much profit he wants to make on it. The homeowner can accept this bid, sign a Fixed Sum Contract, and consider the work done for $30,000.

Every Fixed Sum Contract is a small gamble on the part of the contractor. In an ideal world, a contractor would be able to estimate exactly how much time, equipment, material and overhead would be necessary to complete a project. In the reality of the residential remodeling world, surprises and unforeseen challenges are a regular occurrence. For this reason, a contractor must shield his business from the risk of loss by including money for contingencies and unexpected challenges in his bid budget.

Pros: In a Fixed Sum Contract, the homeowner knows exactly how much the project will cost up front. They have peace of mind knowing that once they pay the stipulated sum, the work specified in the contract will be completed by the contractor without additional costs.

Cons: Homeowners pay the amount the contractor budgeted for contingency plans whether or not they are put in place. This means a homeowner may pay for work that is not actually performed or for materials that are not installed. Contractors who intentionally or mistakenly underbid a project are more likely to cut corners and perform sub-par work to make up for their losses.

Cost Plus Fee Contract

Cost Plus Fee is a contract under which the contractor is reimbursed for their direct and indirect costs and, in addition, is paid a fee for their services. The fee can be stated as a stipulated sum, but usually is stated as a percentage of cost. For every dollar the contractor spends putting the work in place, he charges the homeowner a dollar plus his contracting fee. If the construction project is complicated or takes a long time to complete, the contractor may use progressive billing to charge the homeowner at regular intervals for whatever job expenses occurred during that billing period.

Even though a Contractor under a Cost Plus Fee contract is not legally bound to a final price for the work, homeowners should still require an accurate forecast of construction costs. For this reason, contractors still have to build a complete budget for how much they think the work will cost. However, unlike a Fixed Sum Contract, tasks or materials in a Cost Plus budget forecast that are not installed are not billed to the homeowner, and conversely, portions that end up costing more than expected will be charge to the homeowner above the original forecast.

For example, the same homeowner who had their bathroom remodeled for $30,000 in the Fixed Sum example above might choose to sign a Cost Plus  Contract instead. In that case, the contractor might forecast construction costs at $25,000. The first month’s construction costs might add up to $5,000; month two at $10,000, and month three at $10,000, totalling $25,000. At the end of each month the contractor would bill the client for the construction costs listed above, plus his contracting fee, say, 20%. In the end, when the contracting fee is applied to each of the construction costs, the total cost for the project would be $30,000.

Pros: Time or material savings the contractor experiences on the job are passed on to the homeowner. When homeowners are offered a fair deal, they are more likely to have a good experience, recommend the contractor to others, and call them back for another project. With the security of knowing that every task will be paid for, contractors can do the job right without the pressure to cut corners in order to make a profit.

Cons: The homeowner has no guarantee of the final price of the project until it is complete. Additional costs due to complications or unexpected challenges are passed on to the homeowner.

Which Should I Choose?

As you may have noticed in the remodeling examples given for Fixed Sum and Cost Plus Contracts, though the contracts and billing procedures were different, the final cost of the bathroom remodel ended up being the same. So why does it matter which one you choose? A more detailed example will help clarify the differences between the two.

What if, in the $30,000 bathroom remodel listed above, the contractor predicted that demolition would take three days, for a cost of $1500. In both contract scenarios, $1500 would be budgeted for demolition. Now imagine the contractor finds the old bathroom materials were very easy to remove, and it only takes two days instead of three. The Fixed Sum Contract holder has already agreed to pay the full $30,000, so they do not experience any savings. On the other hand, the Cost Plus Fee Contract holder will save $500 because they will not be charged for a third day of demolition.

To be fair, this example could be reversed so the contractor estimates three days but it actually takes four to complete. Savings would then fall to the Fixed Sum Contract holder instead, because the contractor is responsible to complete the scope of work for the fixed sum. The Cost Plus Contract holder would most likely pay $500 above the forecasted cost for the additional work because it is necessary to complete the project correctly.

Unfortunately, some contractors are more concerned about making money than doing the job right. When faced with a shortfall in their bid, some Fixed Sum contractors will cut corners and perform tasks cheaply when it would cost more to do it correctly.

Summary

These examples illustrate an important point – the key to getting the best quality and value is to select an honest contractor with knowledge and experience who can accurately predict construction costs. This will help prevent the common pitfalls of incomplete cost forecasts or shoddy workmanship. A thorough contractor will help you determine which contract scenario best meets your goals. A company’s reputation and experience may be more important than initial cost forecast in the long run.

Provided to you by Olson & Jones Construction, Inc. We want to educate consumers in order to protect them from fraud and ensure that they are satisfied not only with their finished product, but with the process as well.

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One of the common dilemmas faced by homeowners in choosing if or how to remodel their home is determining the potential resale value or potential to recoup the cost of a particular improvement. Finding a way to compare the cost vs. value of a particular improvement can help make that decision.

Remodeling Magazine produces a powerful report each year called the Annual Cost Vs. Value Report that includes research in key markets all over the country, including Portland. The link to the report is at the bottom of this post, but to summarize, the three best improvements you can do for your Portland home in order of cost recoupment are an attic bedroom addition,  a minor kitchen remodel, or a basement remodel.

We hope this information is helpful in making your remodeling decisions!

http://www.remodeling.hw.net/2010/costvsvalue/division/pacific/city/portland–or.aspx

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One of the standout features of this year’s Home Improvement and Remodeling Show at the Oregon Convention Center was the “Ultimate Kitchen” display. Olson & Jones Construction was proud to be the General Contractor of this project, with Paolo Design Group as the designer.

The Ultimate Kitchen Display starts with basic framing in the warehouseThe rough framing began in a warehouse in Tigard where the skeleton of the kitchen was built. Each framing segment was built in a modular fashion so that it could be easily transported and assembled on site. During the entire construction process weight was always in consideration – each piece would have to be hand loaded into trucks so every non-essential piece of framing was omitted. Metal straps replaced plywood for bracing strength wheneverGreg helps finish up the walls with shear panels to give it strength possible. After the framing was done, drywall was applied and then paint before the big moving day.

All the pieces of the kitchen structure are loaded into a truck at the warehouse to be transported to the Oregon Convention Center

Wednesday, October 13th was D-Day when the whole O&J crew and a 25′ box truck showed up to move the kitchen skeleton to the Oregon Convention Center. Setting up at the Convention Center involved delicate lifting and maneuvering by Kevin, the skilled forklift driver as we placed piece on piece for a nearly finished look.At the Oregon Convention Center, Kevin gives our soffits a lift as we piece it back together One last visit by the drywall repair crew and the paint crew readied the kitchen for cabinet and appliance installation.

ultimate kitchen by Olson & Jones Construction and Paolo Design

ultimate kitchen live edge countertops of reclaimed myrtle wood

ulitmate kitchen cabinets of reclaimed doug fir from pdx

 

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Despite a few brief, sudden downpours, Sean and Benjamin held down the fort Sunday at the Hillsdale Farmers Market by Wilson High School’s track. We had the opportunity to talk with many wonderful people in our neighborhood about home energy, all the while being fed delicious pastries from our booth neighbor Chris from Fressen Artisan Bakery!

We hope to be back in Hillsdale mid October. Lake Oswego Farmers Market is still a possibility – we’ll update our facebook page if we get in. Thank you to all of you who stopped by to say hello!

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ADU GarageEver thought about finishing that basement or converting the garage into a small rental unit? Recent changes by the City of Portland now make that even more possible by temporarily removing up to $15,000 of fees associated with getting it permitted!

What Is An ADU?

Accessory Dwelling Units (ADU’s) have been around for a long time under different names. In the 1940’s, 50’s and 60’s it was not uncommon to rent out a garage, basement, or upstairs as a second unit or “Granny-Flat” apartment to supplement income and provide housing for extended family.

Benefits

ADU HouseADU’s have many attractive features, not the least of which are additional income for the homeowner, housing for extended family/friends, and increased property value. They also provide an attractive way to increase a community’s supply of affordable housing

History

In 2008 the city of Portland began promoting ADU’s by allowing them to be built and rented out in most residential areas. However, stingy square footage restrictions and cost prohibitive systems development charges (SDC’s) for sewage, transportation, water, and park service prevented homeowners from taking advantage of them.

Luckily, the Portland City Council recently realized just how important ADU’s are for the city and on March 3, 2010, temporarily removed the required SDC charges (up to $15,000 for some locations!) and soon thereafter increased the maximum square footage to 800 square feet or 75% of the original dwelling unit, whichever is smaller.

If you are interested in adding an ADU to your existing home, give us a call!

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In an article by the Daily Journal of Commerce, Olson & Jones Construction was consulted on how the drastic reduction of Building Inspectors by Portland’s Bureau of Development Services (BDS) has affected the construction and remodel market.

Last summer Portland’s BDS laid-off over half of their inspectors, making for a sharp increase in wait time for inspections. In new construction projects, this delay can add up to hundreds of dollars in interest, and in all forms of constructon and remodeling the delays make scheduling much more difficult. Greg Olson explained how this affects us:

“Scheduling is so important in this industry because numerous hands and companies touch even the smallest projects. If a project is delayed it not only hurts our relationship with the customer but also our relationships with the subcontractors. And in this industry, everything is based on reputation.”

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Third-party managed customer feedback builds trust in your product. See what Olson & Jones is doing with GuildQuality. athttp://ow.ly/1Ylvp

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