What Is the Definition of a Cost-Plus Contract?

Contracts outline the agreement between two or more parties.

A cost-plus contract is a legally binding agreement in which one party agrees to pay the other party for the costs associated with fulfilling a job plus some additional compensation. This type of agreement pertains to payment of costs and services.

Cost-Plus Fee Contracts

In a cost-plus fee contract the buyer agrees to reimburse the seller for the costs of what they are selling along with an additional fee for their service. The fee is usually a percentage of the costs. Interior designers and decorators often use this type of contract to ensure they are paid for the furniture and materials purchased to design a space and compensated for completing the job.

Cost-Plus Fixed Fee

Cost-plus fixed fee contracts are similar to cost-plus fee contracts but instead a fixed fee is set on the compensation for the service being provided. This type of contract does not involve percentages.

Cost-Plus Award Fee Contracts

A cost-plus award fee contract outlines a reimbursement for the costs associated with the job, a fixed fee and an award based on an after-completion evaluation. The award serves as an incentive to provide excellence. The amount of the award and fixed fee may vary as they are agreed upon prior to signing the contract.

References

• Project Management Knowledge: Cost-Plus-Fixed-Fee (CPFF) Contract
• Government Acquisition: Subpart 16.3---Cost-Reimbursement Contracts