Cost to Complete: Definition and Application

Cost to complete refers to the total amount of money required to finish a construction project, as documented in an approved construction budget. It encompasses all necessary expenses incurred during the completion of the project, including labor costs, material costs, equipment costs, permits, subcontractor fees, and any other expenses directly related to the project’s completion.

Key Facts

  1. Definition: Cost to complete is the total amount of money needed to finish a construction project and is documented in an approved construction budget.
  2. Breach of Contract: Cost to complete is often used as a measure of damages when a contractor breaches a contract by not completing a project. In such cases, the cost of completion reflects the actual expenses required to bring in a new builder or contractor to finish the construction.
  3. Qualifying Costs: The cost to complete includes all necessary expenses to complete the project, such as labor costs, material costs, equipment costs, permits, subcontractor fees, and any other expenses directly related to the completion of the construction project.
  4. Construction Budget: The cost to complete is typically documented in an approved construction budget. This budget outlines the estimated costs for each phase of the project and serves as a reference point for tracking the actual expenses incurred during the construction process.

Breach of Contract

Cost to complete often serves as a measure of damages when a contractor breaches a contract by failing to complete a project. In such cases, the cost of completion reflects the actual expenses required to engage a new builder or contractor to finish the construction. This cost is determined by assessing the remaining work, materials, and labor needed to complete the project as per the original plans and specifications.

Qualifying Costs

The cost to complete includes all qualifying costs necessary to complete a construction project. These costs typically include:

  • On-site or off-site improvements
  • Building construction
  • Reasonable and customary costs paid to construct or improve a project, including general contractor fees
  • Other expenses typically included in a construction contract, such as bonding and contractor insurance
  • The value of the land, determined as the sum of the cost of any improvements to the land and the lesser of appraised market value or purchase price
  • Interest as provided by the relevant subparagraph
  • Project costs as provided by the relevant subparagraph
  • A contingency account to fund unanticipated overruns
  • Other development costs such as fees and related pre-development expenses

Construction Budget

The cost to complete is typically documented in an approved construction budget. This budget outlines the estimated costs for each phase of the project and serves as a reference point for tracking the actual expenses incurred during the construction process. The construction budget is crucial for managing project costs and ensuring that the project is completed within the allocated budget.

Conclusion

Cost to complete plays a significant role in construction contracts and project management. It provides a comprehensive estimate of the total expenses required to finish a project, serves as a benchmark for tracking project costs, and acts as a measure of damages in cases of breach of contract. By carefully calculating and managing the cost to complete, project owners and contractors can ensure the successful completion of construction projects within the agreed-upon budget and timeline.

Sources

FAQs

What is cost to complete?

Cost to complete refers to the total amount of money required to finish a construction project, as documented in an approved construction budget. It includes all necessary expenses incurred during the completion of the project.

When is cost to complete used?

Cost to complete is often used as a measure of damages when a contractor breaches a contract by failing to complete a project. It is also used during project planning and budgeting to estimate the total cost of a construction project.

What costs are included in the cost to complete?

The cost to complete includes all qualifying costs necessary to complete a construction project, such as labor costs, material costs, equipment costs, permits, subcontractor fees, and any other expenses directly related to the project’s completion.

How is the cost to complete determined?

The cost to complete is typically determined by assessing the remaining work, materials, and labor needed to complete the project as per the original plans and specifications. It is documented in an approved construction budget, which outlines the estimated costs for each phase of the project.

What is the purpose of the construction budget?

The construction budget serves as a reference point for tracking the actual expenses incurred during the construction process. It helps project owners and contractors manage project costs and ensure that the project is completed within the allocated budget.

How can the cost to complete be managed?

The cost to complete can be managed by carefully planning and budgeting for the project, selecting reliable contractors, negotiating favorable contracts, monitoring project progress, and controlling project costs throughout the construction process.

What happens if the cost to complete exceeds the original budget?

If the cost to complete exceeds the original budget, project owners may need to secure additional funding or make adjustments to the project scope or design to bring the costs back within budget.

Who is responsible for the cost to complete?

In the case of a breach of contract, the contractor who failed to complete the project is typically responsible for the cost to complete. However, in most cases, the project owner is responsible for the cost to complete, as outlined in the construction contract.