In a Cost-Plus Contract, how is the contractor reimbursed?

In a Cost-Plus Contract, the contractor is reimbursed for all actual costs incurred during the completion of a project, with an additional markup applied to cover profit. This markup can vary, typically being a percentage of the actual costs or a fixed fee. The rationale for this type of contracting is that it allows the contractor to be compensated for the actual expenses of materials, labor, and overhead while also ensuring they receive a profit margin.

This form of contract is beneficial in situations where the scope of work is not precisely defined, or when there are uncertainties involved in the project that might affect costs. It provides a level of flexibility, allowing the contractor to proceed with the work without constantly adjusting for small changes in cost, which can often occur in construction projects. The contractor's reimbursement structure aligns with transparency in reporting actual costs and prevents disputes over billing, as all expenses are documented and agreed upon.