Get Cost Plus Contract

Cost plus percentage of cost is a method contractors often use to price services. This type of contract specifies that the buyer must pay all the project costs incurred by the seller, plus an additional amount for profit.

A cost plus contract is a contract where a contractor obtains material and services throughout the stages of the building process and costs are passed to the owners, with an agreed margin to cover overheads and profits.

The contract allows ABC to incur direct costs such as materials, labor, and costs incurred to hire subcontractors. ABC can also bill indirect, or overhead, costs, which include insurance, security, and safety. The contract states that overhead costs are billed at $50 per labor-hour.

Cost Plus Contract Disadvantages For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way.

Disadvantages to the Contractee: (i) The final contract price is uncertain, with the result; the budget of cost cannot be set; (ii) Contractor may deliberately incur higher prime cost in order to increase profit.

A cost plus contract is a contract where a contractor obtains material and services throughout the stages of the building process and costs are passed to the owners, with an agreed margin to cover overheads and profits.

The contract allows ABC to incur direct costs such as materials, labor, and costs incurred to hire subcontractors. ABC can also bill indirect, or overhead, costs, which include insurance, security, and safety. The contract states that overhead costs are billed at $50 per labor-hour.

Cost Plus Contract Disadvantages For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way.

A cost-plus contract is an attractive option for a contractor for these two reasons: The contractor cannot produce a proposal for the work because of incomplete information about the project, and therefore transfers the risk of the cost of the project to the owner.

Cost-type contracts DOD pays allowable contractor costs (e.g., labor) and risks paying more if costs increase. Fixed-price-type contracts DOD pays a fixed price, at which the contractor must deliver the item or service.