Cost plus contract

A cost plus contract is an arrangement under which a contractor is reimbursement for all costs incurred on a project, plus a profit that is typically calculated as a percentage of the costs incurred. This arrangement is most commonly used for one-time projects or research projects where it is difficult to determine what the total cost will be. A cost plus contract is quite favorable for the contractor, since there is no risk of loss. The contractor may attempt to charge corporate-level overhead costs to the project, which the customer guards against by specifying exactly which types of costs can be charged to the project for reimbursement purposes. Given the risk of being overbilled by contractors, customers routinely audit the books of their contractors to ensure that they are being billed the correct amounts.

Related Courses

Revenue Management 
Revenue Recognition