Written by 2:03 PM

Cost-Plus Contract

« Back to Glossary Index« Back to Previous Page

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.

Visited 1 times, 1 visit(s) today
Synonyms:
Cost-Reimbursable Contract, Open-Book Contract
« Back to Previous Page« Back to Glossary Index
Close