A Cost-Plus Contract reimburses the contractor for actual project costs, including materials and labour, plus a fixed fee or a percentage of the total cost. This type of contract is typically used when there is uncertainty about the total project expenses at the start.

How Cost-Plus Contracts Help with Uncertainty

Cost-Plus contracts are ideal for projects where the scope and final costs are difficult to estimate. The contractor is paid for the actual expenses incurred, plus an agreed-upon profit margin. However, this type of contract requires careful monitoring of costs to ensure that the project remains within budget, as there is no fixed price.

Best Practices for Managing Cost-Plus Contracts

Contractors should maintain detailed records of all costs and provide regular updates to the client. It’s often beneficial to agree on a maximum cost limit to prevent the project from exceeding the client’s budget. Transparency in cost reporting is essential to maintain trust between the contractor and client. Related Terms: Time and Materials (T&M) Contract, Guaranteed Maximum Price (GMP) Contract

FAQs

How is the contractor compensated in a Cost-Plus contract?

A: The contractor is reimbursed for actual project costs, including materials and labour, plus a fixed fee or a percentage of the total cost.

What are the risks for clients in a Cost-Plus contract?

A: The main risk for clients is that costs can exceed initial estimates, as there is no fixed price. Setting a maximum cost limit can help mitigate this risk.

Cost-Plus Contract Definition

How Cost-Plus Contracts Help with Uncertainty

Best Practices for Managing Cost-Plus Contracts

FAQs

How is the contractor compensated in a Cost-Plus contract?

What are the risks for clients in a Cost-Plus contract?

Just upload your starting project budget, and follow the financial progress in real-time