Construction
Cost Plus Contract
A contract where the owner pays the contractor for actual costs plus an agreed-upon fee for overhead and profit.
What is a Cost Plus Contract?
A cost plus contract is a contract structure where the owner reimburses the contractor for all allowable costs incurred during the work, plus an additional fee for overhead and profit.
Fee Structures
- **Cost + Fixed Fee** — predetermined fee regardless of actual cost
- **Cost + Percentage** — fee is a percentage of actual cost
- **Cost + Incentive** — fee adjusted based on performance targets (schedule, cost savings)
When to Use
- Scope is not well defined
- Urgent or fast-track projects
- Design-build delivery
- Complex or unique projects
Advantages
- Flexibility for changes
- Lower risk for the contractor
- Faster mobilization
Disadvantages
- Less cost certainty for the owner
- Requires detailed cost tracking
- Potential for cost overruns without incentives
Related Terms
- Unit Price Contract
A contract where the contractor is paid a fixed price per unit of work, with the final cost determined by the actual quantity of work performed.
- Lump Sum Contract
A contract where the contractor agrees to perform the entire scope of work for a fixed price, regardless of actual costs incurred.
- Construction Contract
A legally binding agreement between the owner and the contractor that defines the scope, schedule, price, and terms of a construction project.
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