Get Washington Construction Contract Cost Plus Or Fixed Fee

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.

Budget: A fixed-price contract is just that: fixed. The agreed-on price at the beginning of the project is the price at the end. Conversely, a cost-plus contract estimates a project's costs but doesn't set the final price until the project is completed.

A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract.

The main difference is the way profit is handled. With a T&M contract, fees are marked up, so the contractor makes a profit. With a cost-plus agreement, a contractor bills for expenses at cost plus an additional, separate fee that represents its profit.

A CPPC contract is one that is structured to pay the contractor his actual costs incurred on the contract plus a fixed percent for profit or overhead (that is not audited/adjusted) and which is applied to actual costs incurred.

When is a Cost Plus Fixed Fee Contract Used? Cost plus fixed fee contracts can be used when both the contractor and the owner agree that the contractor is entitled to a fee in addition to the project expenses.

Overview: Cost-Plus vs Fixed Price The two main types of contracts for a custom home or remodeling project are cost-plus and fixed price. In a fixed-price contract, the total cost is predetermined. However, with cost-plus, the expenses are estimated but the final price isn't determined until the project is complete.

An FFP contract is not subject to any adjustment, whereas a Fixed Price Contract might have a provision for economic price adjustments. Definition: A firm-fixed-price (FFP) contract provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience in performing the contract.