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For these reason I recommend avoiding cost-plus contracts in most cases. They simply carry too many risks for the owner and few benefits. They often lead to cost overruns and disputes over money. It's better to nail down as many costs as possible before starting the job and get a fixed bid.
Unlike a fixed-cost construction contract, a cost-plus construction agreement is a contract in which the owner pays the contractor the actual costs of the materials and labor plus an additional negotiated fee or percentage over that amount.
The cost-plus agreement is a good option when building and design plans are still fluid and time is a crucial factor in getting a project started.
coordinated CostPlus contract can save the Owner a lot of money. For instance, on a Fixed Price contract, if the Contractor is able to save money by finding a better material price, or using laborsaving strategies, those savings revert to the Contractor.
plusfixedfee contract is a costreimbursement 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.
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.
plus contract is one in which the contractor is paid for all of a project's expenses plus an additional fee for the job. The additional fee is intended to be the contractor's profit.
Cost-plus contracts are majorly found in the construction industry where the contractor is reimbursed the number of expenditures made for the contract and fixed percentage fees of the contract cost as the profit made on the contract.
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.
Advantages and Disadvantages of Using Cost-Plus Contracts They eliminate some risk for the contractor. They allow the focus to shift from the overall cost to the quality of work being done. They cover all the expenses related to the project, so there are no surprises.