What does a Cost Plus Fee contract entail for the contractor?

A Cost Plus Fee contract involves the contractor being reimbursed for the actual costs incurred during the execution of the work, in addition to receiving a fee for their services. This type of contracting is beneficial in situations where project scope and costs can be uncertain or may change during the project lifecycle. The contractor is compensated for all allowable expenses, which can include materials, labor, and overhead, ensuring that they are not at risk of being underpaid if costs exceed initial expectations.

Additionally, the fee element compensates the contractor for their effort and profit, typically structured as a fixed percentage of the costs or as a set fee. This type of contract is particularly useful in complex projects where precise estimates are challenging, allowing for flexibility in handling unexpected developments without placing undue financial burden on the contractor. Thus, the structure of a Cost Plus Fee contract incentivizes the contractor to manage costs effectively while also ensuring they are fairly compensated for their work.