A cost-plus contract is an agreement where one party reimburses another for costs incurred plus additional profit after project completion. The types of cost-plus contracts include cost plus award fee, cost plus fixed fee, cost plus incentive fee, and cost plus percentage of cost. While this contract type offers flexibility and minimizes contractor risk, it also presents challenges such as uncertain total costs and potential disputes over cost calculations.

1. By:-
eFinanceManagement.com
https://efinancemanagement.com/costing-terms/cost-plus-contract
Cost Plus Contract

2. 1. Meaning
2. Types
3. Advantages
4. Disadvantages
5. Reference
Content

3. An agreement between two parties whereby one party promises to reimburse the other party for the costs incurred and
any additional profit after the completion of the project is called a COST-PLUS CONTRACT.
The most important element of the cost plus contract is that the client has to trust the contractor for the smooth
execution of the project. The other name of Cost Plus Contract is Cost Reimbursement Contract or Cost Plus Fixed Fee
Contract.
Meaning

4. Following are the types of Cost-Plus Contract:
1. Cost plus award fee contract
2. Cost plus fixed fee contract
3. Cost plus incentive fee contract
4. Cost plus percentage of cost contract
Types

5. Advantages of a Cost-Plus Contract:
• Contractor gets flexibility.
• Contractor’s risk is minimized.
• It focus on quality rather than cost.
• Budget friendly contract.
• Helpful in outsourcing R&D activities.
Advantages

6. Disadvantages of Cost-Plus Contract:
• Buyer has to bear the risk.
• Total cost is uncertain.
• May cause dispute in calculating cost.
• Difficult to realize indirect cost.
• Completion may get delayed.
Disadvantages

7. Reference
To know more about it, click on the link given below:
https://efinancemanagement.com/costing-terms/cost-plus-contract