A cost-plus-fixed-fee contract is a type of project management contract in which the contractor is paid a fixed fee plus the actual costs they incurred during the project. Before the project starts, the fixed fee is talked about and agreed upon. It is meant to cover the contractor’s costs and give him a profit.
In this type of contract, the client pays the contractor for all direct costs, such as labour, materials, equipment, and anything else. Then, the fixed fee is added to these costs to find out how much the whole project will cost.
One of the best things about a cost plus fixed fee contract is that it makes things very clear and makes sure everyone is held accountable. Since the client pays for all of the contractor’s actual costs, they know exactly where their money is going and can make sure the contractor is using it wisely.
One problem with this type of contract, though, is that the contractor may not have a strong reason to keep costs down. Since they are reimbursed for their actual costs, there may be less pressure to keep costs down than if they were paid a fixed price for the whole project.
Overall, a cost-plus fixed fee contract can be a useful tool in project management, but it is important to carefully weigh the pros and cons before deciding if it is the best way to handle a certain project. Also, it’s important to negotiate the fixed fee carefully to make sure it’s fair and reasonable for both parties.
Usage
It is used in procurement management
