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What is cost-plus pricing in construction?

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.

What are the types of cost-plus contracts?

Types Cost plus fixed-fee (CPFF) contracts pay costs plus a pre-determined fee that was agreed upon at the time of contract formation. Cost-plus-incentive fee (CPIF) contracts have a larger fee awarded for contracts which meet or exceed certain performance goals, for example being on schedule and any cost savings.

What cost-plus contract means?

A cost-plus contract is an agreement that specifies the client will pay the contractor for construction expenses detailed in the contract, plus an additional percentage to provide the contractor with a profit.

Under what circumstances is a cost-plus contract favorable to both owner and contractor?

When the parties are proactive in the formation and negotiation of the agreement, the cost-plus contract can be a beneficial contract for both parties.

What does firm fixed-price mean?

A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractors cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.

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