Contract Glossary
Cost-Plus Contract
Definition
A contract where the buyer pays the actual cost of materials and labor, plus a markup (either a fixed fee or a percentage). The contractor doesn't profit from inflating costs because the fee is separate from expenses. Also called a 'cost-reimbursement' contract.
In Practice
You hire a contractor to renovate your office and agree to pay all material and labor costs plus a 15% markup. If the renovation costs $80,000, you pay $92,000 total. Cost-plus works well when the scope is uncertain and a fixed price would either overcharge you or put the contractor at risk of losing money.
Common in these contract types
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