Cost Plus

Another type of contract is called “cost plus.” There is variety in this category that allows for a contractor and client to find the best agreement for both of them.

Fixed Percentage

In a cost plus fixed percentage contract, the owner assumes risks for a project that goes over its originally-estimated price. The contractor is paid for the job and receives an additional agreed upon fixed percentage to added costs. To keep things honest, the books are open during these projects so an owner may audit costs at any time. Contractors manage the projects and seek the lowest costs available.

Fixed Fee

Fixed fee cost plus contracts are very similar to fixed percentage contracts. The difference here is that the contract defines the amount that a contractor will receive for the job as well as the amount of the fixed fee attached to costs that exceed the original estimate. Lump sum incentives can be used to motivate the efficient completion of a project and lump sum penalties can be added based on overruns or delays.

Variable Percentage

Variable percentage contracts specify that a contractor agrees to a penalty of a job goes over schedule and reward if the job is completed early or under budget. The project duration is agreed upon and outlined specifically. For owners looking to accomplish a project quickly and who are not opposed to a bit of financial risk, this contract incentivises contractors to reduce costs as much as possible.

What are my other options?

Lump Sum

Target Estimate

Guaranteed Maximum Price

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