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The Curious Bag
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Cost-plus contracts, also known as cost-reimbursement contracts, are proposals made between businesses for certain projects or jobs. Businesses frequently use cost-plus contracts in bidding situations to generate new contracts for services or goods.
Features
The basic features in a cost-plus contract consist of the costs expensed by a company to complete the contract, plus a fixed profit amount. The profit amount can be negotiated between the contract parties.
Function
Cost-plus contracts allow businesses to seek out several suppliers and achieve the best value for large projects. Companies may also break down projects into smaller jobs, utilizing several suppliers through cost-plus contracts.
Types
While most cost-plus contracts include a set profit amount, some contracts offer incentives or awards. These contracts include bonuses for completing work ahead of schedule or exceeding minimum standards.
Time Limit
Because most cost-plus contracts include material costs for projects, time limits are included to ensure higher material costs do not impact the profit amount in the contract. Contracts usually have a 90-day limit for acceptance.
Benefits
Cost-plus contracts allow several business, small and large, to bid for projects. Bidding companies can offer advantages based on their materials costs or supplier agreements, giving them advantages over other companies.
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