The Cost-Plus Contract
In this form of contract, the contractor supplies construction at its actual cost "plus" some fixed ratio for the duration of the project’s construction. This latter amount includes the costs of supervision, and profit. So long as price increases do not become a problem, this is fixed for the duration of the project. The main downside of this type of contract is the supervisory effort required, involving daily checking of the plant, labor, and materials.
Cost-plus contracts are normally used in projects that need to be executed quickly and urgently, or that are of particular importance, or that are very small-scale. They usually require delivery of materials in remote areas for urgent purposes. This type of contract is common in oil and gas projects, which often require urgent action to meet some unpredictable contingency or other. The cost of materials is known from the suppliers’ invoices, while the contactor obtains his fixed percentage as agreed beforehand.