Cost Plus Fixed Percentage Contracts

Full Description

Understanding Cost-Plus Fixed Percentage 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 Percentage Contract.

Cost Plus Fixed Percentage Contract type of contract fixes up a percentage over and above the total price at the time of contract award, which will be paid to the contractor if the contractor cost rises. Here, the owner does not have control over price, and the chances of malpractices by the contractor are more.