Cost plus fixed fee contract, also known as a cost reimbursable contract, is a type of contract that involves the contractor being reimbursed for the actual cost of the work, as well as an additional fixed fee. This type of contract is commonly used in the construction industry, but can also be used in other industries such as IT and consulting.
Under a cost plus fixed fee contract, the contractor is responsible for all the costs associated with completing the project, including labor, materials, equipment rentals, and other costs. In addition to the actual costs, the contractor is also entitled to receive a fixed fee, which is typically a percentage of the total cost of the project.
The benefit of a cost plus fixed fee contract is that it allows the contractor to be reimbursed for all the actual costs incurred while completing the project, including unexpected expenses and unforeseen circumstances. This provides the contractor with a greater level of financial security and reduces the risk of losing money on the project.
However, the downside to a cost plus fixed fee contract is that there may be an incentive for the contractor to increase the actual costs of the project, as this will result in a higher fee. This can lead to tension between the contractor and the client, and may even result in legal disputes.
When entering into a cost plus fixed fee contract, it is important to carefully review the terms and conditions of the contract and to ensure that both parties understand their responsibilities and obligations. It is also important to have a clear understanding of the actual costs associated with the project and to have a contingency plan in place to address unexpected expenses.
In conclusion, a cost plus fixed fee contract is a type of contract that provides contractors with a greater level of financial security, while also ensuring that clients are only paying for actual costs incurred. However, it is important to carefully consider the potential risks and benefits of this type of contract before entering into an agreement.
