Cost-plus Contract

In a cost-plus arrangement the buyer reimburses the supplier's actual costs and adds a fee, calculated as a fixed sum or a percentage. This shifts cost risk to the buyer but suits work where the scope cannot be pinned down in advance, such as complex projects, development work or emergency repairs where a fixed price would be guessed at.

Because the supplier is reimbursed for costs, the buyer needs transparency and controls — open-book accounting, cost caps and clear definitions of allowable costs — to keep spending in check. The main advantage is flexibility; the main risk is weaker incentive for the supplier to control costs, which is why cost-plus is used selectively rather than by default.