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Estimating & Biddingaka: cost-plusaka: time and materials

Cost Plus Contract

In Plain English

A contract where the owner pays all actual costs plus an agreed fee to the contractor.

Definition

A cost plus contract is a contract type in which the owner agrees to reimburse the contractor for all allowable project costs plus a fee, which may be a fixed amount or a percentage of costs. This type shifts cost risk to the owner but provides flexibility for projects with uncertain scope. A guaranteed maximum price (GMP) provision is often added to limit the owner's exposure.

Why It Matters in Bidding

Cost plus changes how a contractor competes: instead of a lump sum number, the bid often centers on the fee, staffing rates, and general conditions, while transparency of actual costs becomes contractual. Estimators must understand which costs are allowable and reimbursable, because misclassified costs get disallowed and erode the very margin the fee was meant to protect.

Example

For a fast-tracked tenant fit-out with unresolved design, the owner awarded a cost plus contract with a guaranteed maximum price, paying documented labor and material costs plus a 5% fee while the GMP capped total exposure.

Related Terms

Guaranteed Maximum PriceLump SumGeneral ConditionsOverhead

Frequently Asked Questions

Common variants are cost plus fixed fee, cost plus percentage of cost, cost plus a fee with a guaranteed maximum price, and cost plus with shared savings. The fixed-fee and GMP forms give owners more cost discipline, while percentage-of-cost arrangements offer the least incentive to control spending and are often restricted on public work.
Cost plus suits projects with undefined or evolving scope, fast-track schedules where construction begins before design is complete, or complex renovations with hidden conditions. It lets work start without a firm price and shares risk fairly when quantities cannot yet be taken off. Lump sum is better when drawings are complete and scope is stable.
A guaranteed maximum price sets a ceiling on total reimbursable cost plus fee. The owner pays actual documented costs up to that cap, and the contractor absorbs anything above it. Many GMP contracts also include a savings-sharing clause, splitting any amount the project finishes under the cap between owner and contractor.

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