What is the general purpose of a Cost Plus Percentage contract?

The general purpose of a Cost Plus Percentage contract is to provide the designer or contractor with a fee that is calculated as a percentage of the actual costs incurred during the project. This type of contract is beneficial in situations where the total project costs are uncertain or difficult to estimate ahead of time. By using this contract structure, the contractor is reimbursed for all legitimate costs associated with the project, such as labor, materials, and expenses, plus an additional percentage that serves as their profit margin.

This arrangement incentivizes thorough service and attention to detail because the contractor's profit increases as the project costs rise. It assures that the contractor is compensated for actual expenses, which can encourage them to spend the necessary time and resources to meet the quality and performance needed in the project. In situations where the scope of work is not fully defined, or the project has inherent uncertainties, this type of contract can provide flexibility while ensuring that the contractor is rewarded for their time and effort.