Home warranty insurance

Cost-plus and Construction Management contracts

Cost-plus contracts

Cost-plus contracts are not covered for non-completion. A cost-plus contract involves a “pay as you go” arrangement, with no certainty as to the final cost of the work.

For example, if you have a contract to renovate a home which specifies that the owner will pay the contractor’s costs plus a margin of 15%, there is no certainty as to what the final cost will be – it depends on how much it costs to do the work.

A claim for non-completion requires that the consumer has a fixed price contract with a contractor – i.e. there must be certainty about the final cost of the work. If a consumer has a cost-plus contract, the claim for non-completion will be declined because it is not possible to quantify what, if any, loss the owner has suffered. Theoretically an owner should never suffer a loss for non-completion of a cost plus contract, because the owner should only have paid for the work done.

Construction management contracts

A construction management contract is a contract whereby the home owner engages a construction or project manager to manage the carrying out of work.  The construction manager is paid a fee for the services provided. The home owner enters into contracts with, and pays trade contractors and suppliers, directly.

A construction management contract is not covered for non-completion work. Construction management trade contracts however, provided they are for fixed prices and otherwise meet the terms of cover, can be the subject of a non-completion claim in the event the trade contractor fails to complete the work.