Cost plus contract

[edit] What are cost plus contracts

Cost plus contracts are a form of contract whereby the contractor's costs are reimbursed along with a further payment, the nature of which depends on the form taken. As such these types of contract fall under the general category of cost reimbursable contracts, which might be considered higher risk from the client side because the final cost might not be specifically known or defined, although opinions differ on this point. The use of a guaranteed maximum price (GMP) along side cost plus has been one solution to this.

[edit] Cost plus, cost reimbursable and prime cost contracts

JCT has suggested that cost plus contracts, cost reimbursable contracts and prime cost contracts, are in fact the same, whilst others consider they differ as cost of work packages (the prime cost) are reimbursed, but the main contractor takes on risks of staffing, overhead costs and profit.

[edit] Prices and provisional sums

The disagreement or confusion may lay in the differences between the terminologies of fixed price, firm price, lump sum, stipulated sum, prime cost, guaranteed maximum price (GMP) and so on. The differences essentially being in the considered accuracy of the said amount, and which aspects are covered. For example the inclusion of defined provisional sums, undefined provisional sums, contingencies or allowances within the total might be for items of work that cannot be specifically priced by the contractor and as such may detract from accuracy leading to the use of GMP.

[edit] Types and terms describing cost plus contracts

There are a number of variations, as well as terms, that describe cost plus contracts, which also vary depending on the country of their use, some examples of these are described below.

[edit] Cost plus (Cost +) fixed percentage contract

Cost + Fixed Percentage Contract – Contractor will be entitled to Cost and profit percentage as agreed before.

[edit] Cost plus (Cost +) fixed fee contract

Cost + Fixed Fee Contract – Contractor will be entitled to Cost and Fixed fee as a profit

[edit] Cost plus (Cost +) fixed fee with Guaranteed Maximum Price Contract

Cost + Fixed Fee with Guaranteed Maximum Price Contract – Contractor will be entitled to Cost and Fixed fee as a profit, But the cost of the project should not exceed the agreed amount

[edit] Cost plus (Cost +) award fee contract

Cost + Award Fee contract is essentially the same as Cost + Fixed Fee Contract, allow the contractor to be awarded a fee usually for good performance.

[edit] Cost plus (Cost +) incentive fee contract

Cost + incentive fee contract is essentially a different description of the same as above, it may describe when the contractor is given a fee if their performance meets or exceeds expectations.

[edit] Multiple Incentive Contracts

Multiple Incentive Contracts are another term for incentive contracts that relate normally to the standard three areas of cost, quality and time, but could be expanded or defined in more detail.

[edit] Related articles on Designing Buildings

• Benchmarking.
• Building performance.
• Business plan.
• Contracts for Difference.
• Contingent liabilities.
• Cost plan.
• Cash flow.
• Cost reimbursable contract.
• Contingencies in construction.
• Contingency plan.
• Defined provisional sum.
• Energy performance contracts.
• Estimate.
• Fixed price construction contract.
• Guaranteed maximum price for construction contracts.
• Low Carbon Contracts Company‎.
• Lump sum contract.
• Milestones.
• Performance.
• Performance contracting.
• Performance incentives in contracts.
• Performance requirements.
• Preliminaries in construction.
• Prime cost contract.
• Project risk.
• Provisional sum.
• Retention.
• Undefined provisional sum.
• Value management.
• Whole life costs.