Cost Plus Fixed Fee Contracts

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What is a “Cost Plus Fixed Fee Contract”?

A cost-plus fixed fee contract is a specific type of contract wherein the contractor is paid for the normal expenses for a project, plus an additional fixed fee for their services.  These allow the contractor to collect a profit on the project, and they encourage economic production in various industries. 

In general, the expenses in a cost-plus fixed fee are calculated according to market values.  However, the “fixed fee” portion of the contract may be subject to negotiation between the parties, and can therefore vary according to the needs in each project.  Cost-plus fixed fee contracts are sometimes referred to as CPFF contracts, cost-plus contracts, cost-reimbursement contracts, and cost + fixed fee contracts.

When is a Cost Plus Fixed Fee Contract Used?

Cost plus fixed fee contracts can be used when both the contractor and the owner agree that the contractor is entitled to a fee in addition to the project expenses.  There may be various reasons for this agreement, but cost-plus contracts should also spell out the basic reasons that the contractor is entitled to the fee.  There should also be provisions addressing what legal consequences should follow if the fee provisions aren’t upheld.

What are Some Pros and Cons of Cost Plus Fixed-Fee Contracts?

Depending on the parties’ needs, there may be different pros and cons to using a cost-plus fixed fee contract arrangement.  In order to avoid a breach of contract, both parties should consider these aspects of cost-plus contracts. 

Some advantages of a CPFF contract can include:

Disadvantages of cost-plus fixed-fee contracts may include:

Thus, both parties should weigh all the pros and cons before entering into a cost plus fixed-price contract.  Again, each contract will be different, depending on the type of project involved and the relationship of the parties.

Are There Other Types of “Cost Plus” Contracts?

Yes, there are other types of “cost-plus” contracts, wherein other expenses are factored in besides the cost of the project.  These may include:

Some of these contracts may be limited by local or state laws, so it’s best to check with an experienced lawyer before signing any type of cost-plus contract. 

Do I Need a Lawyer for Assistance With a Cost Plus Fixed Fee Contract?

Cost plus fixed fee contracts can sometimes be complicated to deal with.  They require a projection of the costs, as well as an appropriate estimate for the contractor’s fee.  In most cases, it’s best if a qualified lawyer drafts and reviews the contract before signing.  Also, a lawyer can provide legal representation during any lawsuits in connection with a breach of contract.

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Last Modified: 07-17-2012 01:47 PM PDT

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