Cost Plus

Cost plus contracts are agreements where the contractor’s pricing is based on itemising allowable costs and then adding an agreed margin. Such pricing basis may be appropriate when there is uncertainty about the scope or nature of the work and the client is willing to accept a level of financial risk. The benefits of the approach include reduction in the contractor’s contingencies, but the contractor has no incentive to act in the most economic way, as the higher their costs, the more margin they make.