What type of contract is termed as 'Cost Plus'?

The 'Cost Plus' contract is characterized by a payment structure that covers the actual costs incurred during the project, along with an additional fee that compensates the contractor for their overhead and profit. This means that the owner agrees to pay for all the legitimate expenses associated with the project, which can include materials, labor, and other direct costs, and in addition, provides a specified fee or a percentage of those costs as an incentive for the contractor.

This type of contract is often utilized when project specifications are not fully defined at the outset, allowing for flexibility as the project progresses. It can be especially beneficial in complex projects where costs may fluctuate, thereby providing some assurance to the contractor that they will be compensated for all expenses incurred. Consequently, the relationship is typically more collaborative, focusing on transparency and communication regarding budget and expenditure.

The incorrect choices present structures that do not align with the characteristics of a 'Cost Plus' contract. A fixed price contract does not allow for adjustments based on actual costs, while pre-determined unit prices set specific rates for certain project elements irrespective of actual expenditures. A contract solely for construction management generally entails a fee for management services rather than the direct payment for construction costs plus a fee structure.