Overhead: Overhead is the expense that a contractor needs to manage the administrative part of the business. These include expenses such as rent, insurance, communications, office equipment, administrative salaries, licenses, attorneys` fees and travel expenses. Governments generally prefer Cost Plus contracts because they can choose the most qualified contractors rather than the lowest bidder. In addition, the licensee could be denied recovery of the costs associated with it if the licensee is attributable to negligence or other relevant error. Some Cost-Plus contracts may be designed to limit the contractor with an amount “to be exceeded” for construction costs. A Cost-Plus contract is an agreement to reimburse expenses incurred by a company, plus a certain amount of profit normally indicated as a percentage of the total contract price. This type of contract is mainly used in the construction sector, where the buyer bears part of the risk, but also offers the contractor a certain degree of flexibility. In this case, the contracting party expects the Contractor to be able to keep its promises of delivery and undertakes to make additional payments to enable the Contractor to make additional profits once concluded. Cost Plus contracts are also used in research and development (R&D) activities in which a larger company can outsource R&D activities to a small company, for example. B a large pharmaceutical company that connects to the laboratory of a small biotech company. The U.S. government also uses cost-plus contracts with military defense companies that develop new technologies for national defense.

Another plus of this type of contract is that it can be used to set a limit or cap for the amount of money a contractor can/will be able to spend on a given project. For a property owner, this can be helpful in maintaining a tight budget. However, as we will continue to discuss in the next section, failure to cap a Cost Plus contract can be detrimental. They can leave the final costs in the air, as they cannot be predetermined. The contractor must justify and bear all costs related to the contract. Depending on the terms of the agreement, the contractor may “replenish” certain costs, including working wages, to cover overhead and unforeseen expenses. Cost Plus contracts were first used by the U.S. government during the World Wars to encourage war production by large U.S. corporations. According to Martin Kenney, “They then allowed small technology companies like Hewlett-Packard and Fairchild Semiconductor to charge the Department of Defense for the price of research and development that no one could pay alone. This allowed companies to develop technological products that eventually created new markets and economic sectors.

[4] A cost plus contract, also known as a COST plus contract, is a contract in which a contractor is paid for all of its eligible expenses, plus an additional payment, to obtain a profit. [1] Reimbursement contracts are contrary to fixed-price contracts, for which a negotiated amount is paid to the contractor, regardless of the charges incurred. . . .