Cost-Plus Contract
A contract type where the owner pays the contractor's actual documented cost of the work plus an agreed fee, a percentage or fixed amount, for overhead and profit, shifting cost risk away from the contractor and onto the owner compared to a [[concept-lump-sum-contract|lump sum contract]].
Why it matters
It's often used when the scope isn't fully defined yet, or when speed matters more than price certainty, since the contractor doesn't have to price unknowns into a fixed number upfront. The tradeoff is that the owner takes on the risk of costs running higher than expected, which is why cost-plus contracts often include a guaranteed maximum price to cap that exposure.
On a real project
An owner needing emergency repairs after storm damage hires a contractor on a cost-plus basis, paying the documented cost of labor and materials plus a 15% fee, rather than waiting for a full scope to be defined and competitively bid.
Who this matters most to
A Construction Accountant plays a bigger role on a cost-plus job than on a fixed-price one, since every dollar of actual cost has to be carefully documented and billed to the owner. A Project Manager has less financial pressure to hit a fixed number, but more responsibility to keep the owner informed as costs accumulate, since trust is what makes this contract type work.
Where this goes wrong
A contractor on a cost-plus job gets loose about tracking and documenting costs in real time, assuming they can reconstruct everything accurately when it's time to bill. The owner disputes several billed items for lack of proper documentation, and the contractor ends up eating costs they actually incurred but can no longer prove.