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Understanding Cost-Plus Fixed Fee Contracts
Cost-plus contracts are generally used if the party drawing up the contract has budgetary restrictions or if the overall scope of the work can’t be appropriately estimated in advance.
In construction, cost-plus contracts are brought up so contractors can be reimbursed for almost every expense incurred on a project.
The cost-plus contract pays the builder for direct costs and indirect or overhead costs. All payments must be supported by documentation of the contractor’s spending in the form of invoices or receipts. Moreover, the contract allows the contractor to collect a certain amount above the reimbursed amount, so they may be able to make a profit—hence, the “plus” in cost-plus contracts.
One type of cost-plus contract is Cost Plus Fixed Fee Contract.
In this type, the contract pays a pre-determined fee agreed upon at the time of award of the contract. This fee will be fixed even if there is any extra. Both contractor and client will share the risk.
01 – General
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