Definition:
A contract in which the owner reimburses the contractor for actual project costs plus a predetermined fee for overhead and profit.
Key Components:
- Direct Cost Reimbursement: Payment for labor, materials, and equipment.
- Fee Structure: Compensation based on a fixed percentage, lump sum, or incentive-based fee.
- Transparency Requirements: Open-book reporting of expenditures.
Use Cases/Industries:
- Complex Energy Projects: Large-scale infrastructure requiring flexible cost management.
- Research & Development: Experimental projects where scope and expenses are unpredictable.
Advantages:
- Flexibility: Easily accommodates design and scope changes.
- Contractor Motivation: Less financial risk for the contractor encourages high-quality execution.
Challenges:
- Cost Uncertainty: Owners may face unpredictable total expenditures.
- Oversight Requirements: Requires diligent cost monitoring to prevent inflated charges.
Related Terms:
Time and Materials (T&M) Contract, Cost-Reimbursable Model
Example:
A hydrogen production facility is built under a cost-plus contract, allowing for scope adjustments as new technology is integrated during construction.
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Synonyms:
Cost-Reimbursable Contract, Open-Book Contract
