Question

Provide a definition of the following types of contracts, as it pertains to construction contracts:

Cost Plus Fee Contract

Answer 1

Cost plus contract, is a contract where a contractor is paid for all its allowed expenses, plus additional payment to allow for a profit.

There are four types of cost plus contracts in general, they are

1) Cost plus fixed fee contract: It is cost plus contract that provides for payment to the contractor of a negotiated fee fixed at the inception of the contract

2) Cost plus incentive fee contract: It is cost plus contract that provides an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs

3) Cost plus award fee contract: Cost plus award fee agreement that offers a performance award to the contractor. The contractor earns this award for excellence in various works ex) Technical skill, adherence to schedule, keeping the costs low

4) Cost plus percentage of cost contract: It is method of payment to contractor in which an additional amount of money expressed as percentage, is paid by the client that is designated to cover the overheat costs of the contractor