Cost-plus contract
Cost-plus contract: an agreement that reimburses a supplier's allowable costs plus an agreed fee or fixed percentage markup, shifting cost-overrun risk from the supplier to the buyer.
See it move
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A contractor builds a warehouse extension under a cost-plus contract paying allowable costs plus a 12% fee. Allowable costs of materials, labour and overhead total €180,000, so the fee is €180,000 times 0.12, or €21,600. The client pays €180,000 plus €21,600, or €201,600 in total — a fee that rises automatically if allowable costs run higher.
Where it fits
SubjectCost AccountingAdvancedTopicPricing & Cost ManagementAdvanced
The formula
LaTeX
Variables
- Total contract price paid (€)
- Allowable costs incurred (€)
- Fee rate (ratio)
Gives the total amount the buyer pays under a percentage-fee cost-plus contract, once the supplier's allowable costs for the job are known.