How to Calculate the Fee on a Cost-Plus Contract

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A cost-plus contract is a type of contract that requires a client to pay all of the costs associated with the project plus a fee for performance of the contract. Many government contracts utilize the cost-plus model. In most cases, the fee for performance of a cost-plus contract is a set percentage of the labor costs billed to the client. You can, therefore, manually calculate this amount with some basic information from the contract and the actual labor costs incurred.

Determine the fee percentage from the cost-plus contract. This percentage is a fixed amount specified in the contract. For example, assume the fee percentage is 15 percent.

Determine the labor cost billed over the course of the contract. This is the sum of all labor hours paid by the client. Typically, the original contract will specify the rate of pay and then the contracted company would bill the client for the actual number of labor hours incurred during the contract. For example, assume the contracted labor rate is $50 an hour and the contracted company bills 1,000 hours to the client. Multiply the contracted rate by the number of billed hours. Continuing the same example, $50 x $1,000 = $50,000.

Multiply the fee percentage expressed as a decimal by the total labor costs billed to the client. Continuing the same example, $50,000 x .15 = $7,500. This figure represents the fee charged on a cost-plus contract.

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