COST PLUS CONTRACT
Cost + (cost plus) is a Contract agreement where the Owner agrees to pay the cost of all labor and materials plus an amount for Contractor overhead and profit (usually as a percentage of the labor and material cost). It is like a Labour Contract, but here the Contractor buys the materials and provides the labour and is reimbursed accordingly. This type of Contract is favored where the scope of the work is indeterminate or highly uncertain and the kinds of labor, material and equipment needed are also uncertain. Under this arrangement complete records of all time and materials spent by the Contractor on the work must be maintained.
This type of Contract can be altered according to the basis on which the additional amount paid to the Contractor is fixed.
Cost + Fixed % Contract- It is based on a percentage of the cost of labour and materials.
Cost + Fixed Fee Contract – It is based on a fixed sum independent of the final project cost.
Cost + Fixed Fee Bonus Contract –It is based on a fixed sum of money and a bonus is given if the project finishes below budget, ahead of schedule etc.
Cost + Fixed Fee With Sharing Any Cost Savings Contract- It is based on a fixed sum of money and any cost savings are shared with the Owner and the Contractor.
Incentive Contracts – It is based on the Contractor’s performance on the agreed target – budget, schedule and/or quality.
Advantages of the Cost + Contract
- It has the advantages of the Labour Contracts.
- In addition, since the Contractor gets an additional amount at the end of the project, it provides maximum incentive for the Contractor to control costs and perform effectively and on schedule.
Disadvantages of Cost + Contract
- In this Contract also, the Architect does not have a role to play, and so quality of work cannot be checked and controlled by an expert.
- Since the Contractor is reimbursed based on the records of the workers he has employed and the materials he has bought, one can never be sure if these records are genuine, as there is no way of verifying them. So, this type of Contract is rarely adopted in India.