Construction Cost Plus Contracts

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Commonly Asked Questions about Construction Cost Plus Contracts

When to use cpff contract?

Cost-Plus-Fixed-Fee (CPFF) Contracts A cost-plus-fixed-fee contract is helpful in situations where the risk to the contractor might otherwise outweigh any non-financial benefits.

What are the rules for cost-plus?

If you use a cost plus contract, you must give a fair and reasonable estimate of the total amount of money you are likely to receive under the contract at the time the contract is signed. You should be careful that the estimate is not a representation of the final contract price.

What type of projects are cost-plus contracts best for?

COST-PLUS CONSTRUCTION CONTRACTS. Cost-plus, or time-and-materials, contracts are often used on jobs with a lot of unknowns and hidden conditions, such as repair work. While generally used for smaller jobs, these contracts are sometimes used for large jobs as well even new homes.

What are the disadvantages of cost-plus construction contracts?

Disadvantages of Cost-Plus Contracts The customer doesnt know the final cost of the project. It could be much higher than they expect. Companies lack incentives to save money on the project unless theres a financial benefit built into the contract.

What type of project is best suited to a cost plus fee?

A cost-plus contract is a pricing plan for a project or service. It requires the client or project owner to pay the contractor a predetermined profit margin along with the full project costs. This type of contract is the ideal choice for complex, long-term projects where the scope of work and final cost can change.

What is a cost-plus construction contract?

A cost-plus contract is a construction agreement that requires reimbursement for project costs as well as a markup that covers the contractors overhead and profit. In other words, the name is a short-hand way of remembering what the contract covers: project costs plus contractor markup.

When would you use a cost-plus contract?

A cost plus contract is entered into by a builder and customer when a fixed price can not be given at the time the contract is entered into. This is usually because the cost of materials and labour can not be easily quoted on until the works commence.

What is an example of a cost-plus project?

Q: What is a cost-plus pricing example? A: As an example, a cost-plus contract may establish that the total estimated cost of a building project is $10 million plus a fixed fee of $1.5 million, roughly 15% of the total cost, as the contractors profit.