Cost-Plus Contract

A cost-plus contract is generally used for construction, and it separates the actual costs of performing the work from the profit. The actual costs of performing the work consist of those for the materials and labor (hard costs) and the management (soft costs) incurred by the person (contractor) hired to do the work. The profit is negotiated prior to the contract signing and can be in the form of a percentage of the costs or a fixed fee. Advantages of a cost-plus contract are flexibility, close scrutiny, and increased opportunity for quality. It can be used for projects with no clear ending. Each contractor invoice includes the backup materials for both hard and soft costs. These should be checked thoroughly by the owner. While this is an advantage, it is also time consuming. It is also a way of choosing a contractor without having to take the lowest bidder.