Pass-through costs are expenses incurred by a contractor that are directly charged to the project owner without Markup. These costs are typically related to Subcontractor services, materials, or equipment rentals that the contractor does not profit from but must manage.
How Pass-Through Costs Impact Construction Contracts
Pass-through costs ensure transparency in pricing, as they are billed at cost without additional fees. They are commonly found in cost-plus contracts, where owners reimburse the contractor for actual project expenses.
Managing Pass-Through Costs Effectively
- Maintain clear documentation of all pass-through expenses to avoid disputes
- Ensure subcontractors and suppliers provide itemized invoices for accuracy
- Use financial tracking software to keep pass-through costs separate from markup expenses
Related Terms: Cost-Plus Contract, Reimbursable Expenses, Direct Costs, Subcontractor Costs
FAQs
Are pass-through costs included in a contractor’s profit calculation?
A: No, since they are reimbursed at cost, they do not contribute to a contractor’s profit.
How can owners verify pass-through costs?
A: Owners should require detailed invoices and supporting documentation from contractors.