Pros and Cons of a Cost-Plus Contract

A cost-plus contract is a type of contract that pays a contractor a certain amount for expenses as well as a predetermined amount on top of that for profit. Here are some of the pros and cons of using a cost-plus contract.

Pros

One of the advantages of using this type of contract is that it tends to lead to a higher quality project. Contractors do not have to cut corners because they know that they will be paid for all of the expenses that they incur plus profit. In some cases, the final costs of this type of project will be less than when using a bidding model because the contractor does not have to include any extra padding to protect themselves.

Cons

One of the disadvantages of using a cost-plus contract is that you will not know how much the project will cost in advance. This leads a lot of uncertainty and if you are trying to work on a budget, this can be dangerous. This type of contract also leads to the contractor having less of a reason to be efficient in their process. If they are inefficient, they will still be paid with profit for their work.

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