A cost plus contract pay a contractor for all of its allowed expenses typically up to a set limit. The ‘plus’ in the name refers to an additional payment that allows a contractor to make a profit. The following is a sample cost plus contract for your reference.

Sample cost plus contract:

The following are the terms and conditions that pertain to the overcharges or extra expenses incurred in the project:

Labour and benefits

Unless otherwise provided in the contract, charges for contractor labour should be limited to the contractor’s field personnel. Charges for home office personnel should not be reimbursable costs and should be covered by the contractor’s fee.

Materials

The contractor is responsible for purchasing the construction materials: structural steel, concrete, pipes, etc.

In testing material purchases cost we need to look for the following:

  • Evidence that a competitive bid process was followed on major material purchases.
  • Material charges on the contractor’s invoice are supported by vendor invoices.
  • Material charges on the contractor’s invoice are supported by cancelled checks.

Subcontractor costs

  • Work subcontracted to others should be covered by subcontracts.
  • For major subcontracts:
    • Determine that subcontractor costs billed represent subcontractor costs incurred by the contractor.
    • If subcontractor costs billed include payment, determine that bonds were actually obtained.

Change Orders

  • Review the contract and determine how the dollar effect is to be calculated.
  • Review change orders and ascertain that the dollar impact is calculated according to the contract.
  • Summarize change orders and trace to latest request for payment.

Signature of the contractor: Will Burner      Date: 01 Jan 2011

Signature of the owner: Hill Ridge              Date: 01 Jan 2011

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