A cost plus fee contract is a type of contract that is commonly used in the construction industry. This type of contract is also known as a cost-reimbursable contract or a time and materials contract. In this type of contract, the contractor is paid for their actual costs incurred during the project, plus a fee or percentage for their services.
The cost plus fee contract is used when the scope of work is not fully defined or when the project involves a high degree of uncertainty. This type of contract is beneficial for both the client and the contractor because it allows for flexibility and can provide a level of certainty in terms of costs.
In a cost plus fee contract, the contractor is responsible for covering all of their direct costs, which include things like labor, materials, equipment rental, and subcontractor fees. The client is typically responsible for covering the indirect costs, which include things like insurance, permits, and fees.
The fee that the contractor charges is typically a percentage of the total direct costs incurred during the project. This fee covers the contractor`s profit and overhead costs. The percentage can vary depending on the project and the contractor`s experience and expertise.
One of the benefits of a cost plus fee contract is that it allows for flexibility in the project scope and timeline. This means that changes can be made to the project as it progresses without having to renegotiate the terms of the contract. This type of contract also allows for transparency in terms of costs, as the client can see exactly what is being spent on the project.
However, there are also some potential drawbacks to a cost plus fee contract. One of the main concerns is that the contractor may not have an incentive to control costs, as they are reimbursed for all of their expenses. This can lead to potential cost overruns and delays, which can result in additional costs for the client.
Overall, a cost plus fee contract can be an effective way to manage a construction project, especially when the scope and timeline are uncertain. However, it is important for both the client and the contractor to carefully consider the potential risks and benefits before entering into this type of contract.
