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1. Costs:

– Direct Costs: These include the actual expenses related to construction, such as materials, labor, equipment, and subcontractor fees. These costs are transparent and passed on to the client with supporting documentation.

– Indirect Costs: Also known as overhead, these are the general expenses incurred by the contractor to manage the project. This can include administrative costs, insurance, permits, and other operational expenses.

2. Fee:
– The contractor charges a fee, typically a percentage of the total project cost, to cover their profit and overhead. This fee is agreed upon and specified in the contract.

3. Transparency:
– One of the key features of the cost-plus model is transparency. Clients have insight into the actual costs incurred during the construction process. They often receive regular updates and detailed documentation of expenses.

4. Flexibility:
– Cost-plus contracts are known for their flexibility, making them suitable for projects with uncertain or changing requirements. This flexibility can be beneficial when dealing with design changes, unforeseen issues, or evolving project scopes.

5. Shared Risk:
– In a cost-plus arrangement, both the client and the contractor share certain risks. The client bears the risk of project cost overruns, while the contractor’s profit is tied to the actual costs incurred.

While cost-plus construction offers flexibility and transparency, it’s essential for both parties to establish clear terms in the contract. The contract should define the scope of work, the contractor’s fee structure, and the method of calculating reimbursable costs. It’s also crucial to establish a maximum allowable construction cost (MACC) to provide some cost containment.

Before entering into a cost-plus contract, clients should carefully consider the nature of the project, their budget constraints, and the level of trust and communication they have with the contractor. Consulting with legal and construction professionals during the contract negotiation phase is advisable to ensure that the terms are fair and well-defined.