Quick answer
Cost plus vs fixed price comes down to who carries cost risk. In a cost-plus contract the owner reimburses actual costs plus a fee, so the owner absorbs overruns. In a fixed-price (lump sum) contract the contractor commits to a set price, so the contractor absorbs overruns. Each shifts risk, incentives, and estimating effort.
- Cost-plus pays actual cost plus a fee; fixed-price locks one number, shifting overrun risk to the contractor.
- GMP contracts cap the owner's exposure while keeping open-book cost visibility.
- Cost-plus needs airtight cost documentation; fixed-price needs a complete, accurate takeoff.
- Contract type should match scope definition, schedule pressure, and risk tolerance.
Cost-Plus vs Fixed-Price Contracts: The Core Difference
A cost-plus contract reimburses the contractor for actual direct and indirect costs plus a fee, while a fixed-price contract (also called a lump sum contract) pays one agreed price for a defined scope. The cost plus vs fixed price decision comes down to who carries overrun risk and how much visibility the owner gets into actual costs.
In a fixed-price contract, the contractor absorbs cost risk. If labor, material or equipment costs run higher than estimated, the contractor's margin shrinks or disappears. In a cost-plus contract, the owner keeps cost risk. If actual costs exceed expectations, the owner pays them, plus the fee.
Neither approach is inherently better. The right choice depends on how well the scope is defined, schedule pressure, current market conditions and the owner's appetite for risk. A project with complete drawings and a stable market often suits fixed price. A renovation with hidden conditions or a fast-track schedule often suits cost plus.
A guaranteed maximum price (GMP) and a cost-plus fixed fee arrangement sit between the two extremes. They blend cost reimbursement with a cost ceiling, giving the owner more price certainty while preserving open-book visibility. For a deeper look at how estimates support either contract type, see construction cost estimating.
What Is a Cost-Plus Contract? Definition and Mechanics
A cost-plus contract definition is straightforward: the owner reimburses the contractor for allowable direct costs (labor, material, equipment) and indirect costs (overhead, supervision, insurance), then pays a separate fee. The contractor does not mark up costs; the fee is the profit mechanism.
Fee structures vary. In a cost plus percentage of cost arrangement, the fee equals an agreed percentage of actual costs. In a cost plus fixed fee contract, the fee is a lump sum set at signing. A third option adds a guaranteed maximum price, capping the owner's total exposure.
Most cost-plus contracts run on open book accounting. The contractor shares invoices, payroll registers and a regular cost report so the owner can audit every reimbursable dollar. This transparency is the main appeal for owners who want to see where money goes.
Portions of the work often bill as time and materials (T&M), with labor rates, equipment rates and material markups agreed in advance. Standard AIA contract forms and EJCDC contract forms provide cost-plus language, including definitions of reimbursable and non-reimbursable costs. Before signing, confirm which items fall outside reimbursable costs, such as home office overhead, bonuses or unapproved overtime.
Open book accounting only works if the contractor provides cost reports on a fixed schedule. Put the reporting frequency and format in the contract.
Cost-Plus Contract Pros and Cons
The cost plus contract pros and cons center on risk, speed and transparency. On the plus side, work can start before the scope is fully defined, changes are easier to absorb, and the owner sees actual costs through open book accounting. The contractor has less incentive to cut corners because there is no fixed price to protect. Collaboration on problem-solving tends to improve when the contractor is not squeezed by a lump sum.
On the minus side, the owner carries cost overrun risk and the final price is unknown at signing. A cost plus percentage of cost fee structure creates a perverse incentive: the fee grows as costs grow, so some owners cap the fee or convert it to a fixed amount. The owner must also actively audit costs, review the schedule of values and approve change orders to keep spending in check.
Cost-plus works well for renovation, restoration and projects with hidden conditions, where a fixed price would carry a large contingency. It works poorly for repeatable, well-defined scopes such as a standard warehouse or a prototype retail build, where contractors can price accurately and compete on lump sum.
Either way, cost-plus contracts demand strong cost controls. A clear schedule of values, regular cost reports and disciplined change order review prevent disputes. For the control side of the equation, see project cost control and reporting.
If you use cost plus percentage of cost, cap the fee or switch to a fixed fee once the scope stabilizes. The incentive problem is real and predictable.
Fixed-Price Contract Pros and Cons
A fixed-price contract, also called a lump sum contract, sets a single price for a defined scope of work before construction starts. The owner knows the number at signing, and the contractor carries the risk of field productivity, material price swings, and coordination problems. This is the core of the cost plus vs fixed price decision: certainty versus flexibility.
Pros. Price certainty at signing lets the owner lock a budget and financing package early. Owner budgeting is simpler because there is one number to track, not a stream of invoices and fee calculations. Administrative burden is lower since the contractor does not submit detailed cost backup for every line. The contractor has a clear incentive to control labor, buy materials well, and finish efficiently, because savings stay with the contractor.
Cons. Contractors price in risk contingency for unknowns, so the owner often pays a premium for certainty. Changes are expensive and slow: a change order requires pricing, review, and approval before work proceeds. Scope gaps in the bid documents become disputes over what was included. If the drawings and specifications are incomplete, the contractor either excludes items or adds contingency, and the owner may not discover the gap until the work is in progress.
Fixed-price contracts require complete bid documents and a well-defined scope of work. Missing information becomes a change order or a claim, and the owner usually pays a markup on that work. Fixed-price is common in public works, hard-bid commercial work, and repeatable residential plans where the design is closed out before bidding. Remember that fixed-price does not mean no changes; it means changes are priced separately and often carry overhead and profit markups on top of the direct cost.
Before you bid or sign a fixed-price contract, confirm that the scope of work is complete. A single missing specification section can turn into a change order that costs more than the contingency you saved.
Construction Contract Types Comparison Table
The table below compares the main construction contract types across risk, use case, owner visibility, change order process, and fee structure. Use it as a starting point for a construction contract types comparison, then confirm the specific terms in your agreement. If you need a working cost plus contract definition, the first row shows how reimbursement plus fee works in practice.
| Contract type | Who carries cost risk | When to use | Owner visibility | Change order process | Typical fee structure |
|---|---|---|---|---|---|
| Cost-plus | Owner carries cost risk; contractor is reimbursed for actual costs plus a fee | Projects with undefined scope, fast-track schedules, or high uncertainty | High: open-book invoices, cost backup, and audit rights | Changes are priced as added cost plus fee; less adversarial because the fee applies to added work | Percentage of cost, fixed fee, or sliding scale |
| Fixed-price (lump sum) | Contractor carries cost risk | Complete bid documents, well-defined scope, competitive hard bid | Low: owner sees the contract price, not the cost breakdown | Changes are priced separately and often carry overhead and profit markups | Single lump sum, sometimes with unit price allowances |
| Guaranteed maximum price (GMP) | Shared: contractor covers overruns above the GMP, owner and contractor share savings below it | Projects with a defined scope but room for cost savings, common in CM at-risk delivery | Medium to high: open-book costs up to the GMP, with a cost ceiling | Changes are priced against the GMP; savings return to the owner per the split | Cost plus fee with a ceiling and shared savings split |
| Unit price | Owner carries quantity risk; contractor carries unit rate risk | Sitework, civil work, and other scopes where quantities vary | Medium: measured quantities are verified against tickets or surveys | Changes are handled by re-measuring quantities at the contract unit rates | Price per unit (CY, LF, SY, ton) |
| Time and materials (T&M) | Owner carries cost risk; contractor is reimbursed for labor, material, and equipment | Emergency work, repair, and small scopes where scope cannot be defined | High: owner sees timesheets, invoices, and equipment rates | Changes are absorbed into the ongoing T&M billing; no separate pricing needed | Hourly labor rate plus material cost plus equipment rate, often with a markup |
The guaranteed maximum price contract row shows the key trade: the contractor accepts a cost ceiling in exchange for a share of savings, which aligns both parties toward controlling cost. The unit price contract row is standard in sitework and civil work because quantities like excavation, backfill, and paving vary with field conditions, so the owner retains quantity risk while the contractor commits to unit rates. For civil and sitework scopes, civil estimating services can help you build the unit price schedule and verify quantities before you commit to a contract type. When you issue a request for proposal, state the contract type you intend to use so bidders price the same risk basis. If you are weighing cost plus vs fixed price, a cost plus vs fixed price calculator can help you compare the fee exposure under each structure before you finalize the agreement.
The contract type you choose should match who can best control the risk. If quantities are uncertain, unit price shifts that risk to the owner; if scope is clear, fixed-price shifts it to the contractor.
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Cost-Plus Contract Example: How the Math Works
Example (illustrative numbers only). A tenant improvement project has $500,000 in direct costs (labor, material, equipment, and subcontractors) and $75,000 in indirect costs (general conditions, supervision, temporary facilities, and insurance). The contract fee is 10% of reimbursable costs. This is a cost plus contract example you can check line by line.
Step 1: Add direct and indirect costs. Reimbursable costs = $500,000 + $75,000 = $575,000.
Step 2: Calculate the fee. Fee = 10% × $575,000 = $57,500.
Step 3: Add the fee to reimbursable costs. Total cost-plus price = $575,000 + $57,500 = $632,500.
Now compare to a fixed-price bid of $650,000 for the same scope. If actual costs stay at the estimate, the owner saves $650,000 − $632,500 = $17,500 under cost-plus. If costs rise, the owner pays more, because the fee is calculated on the higher cost base. That is the trade: cost-plus gives the owner cost transparency and savings when the estimate holds, but leaves cost risk with the owner.
GMP scenario. Suppose the same scope is contracted under a guaranteed maximum price contract with a GMP of $640,000 and a 50/50 shared savings split. Actual costs come in at $620,000, which is $20,000 below the GMP. The savings are split $10,000 to the owner and $10,000 to the contractor. The owner pays $620,000 + $10,000 = $630,000, and the contractor keeps $10,000 in savings. Compare that to the cost-plus total of $632,500 and the fixed-price bid of $650,000.
All numbers here are illustrative. Actual fees, indirect costs, contingency, and savings splits vary by contract and by project. Before you sign, confirm which costs are reimbursable, how overhead and profit are calculated, and whether unused contingency returns to the owner. For tenant improvement scopes, tenant improvement estimating can help you build the direct and indirect cost base that the fee is calculated on.
Always define reimbursable costs in writing. If indirect costs, contingency, or overhead are excluded from the fee base, the total price changes even when the fee percentage stays the same.
Cost-Plus vs Lump Sum: Which Fits Your Project?
A lump sum contract is a specific type of fixed-price agreement where one stated price covers the entire defined scope of work. The owner knows the total cost before mobilization, and the contractor carries the risk of means, methods, and productivity. This differs from a cost-plus arrangement, where the owner reimburses actual costs and pays a fee, so the final price is not known until the work is complete.
When you compare cost plus vs lump sum, the deciding factor is usually design completeness. Cost-plus suits projects with incomplete design, unknown existing conditions, or fast-track schedules where construction starts before drawings are finished. Lump sum suits projects with complete drawings and specifications, competitive bidding, and stable market conditions. If the scope is well defined and the market is predictable, a lump sum contract gives the owner price certainty and simplifies financing.
The choice also changes how you level bids. Lump sum bids are compared directly against each other, so the low bidder is easy to identify. Cost-plus proposals cannot be compared on price alone because the final cost is unknown. Instead, you compare fee percentages, labor rates, equipment rates, and qualifications. A bid estimating service can help you build a comparable scope baseline so every proposal is evaluated against the same quantities and assumptions.
Some owners use a hybrid: lump sum for the base scope, cost-plus for allowances and contingency work. For example, the base building package is bid as a lump sum, while an allowance covers owner-selected finishes and a contingency covers unforeseen site conditions. This keeps most of the price fixed while preserving flexibility where the scope is genuinely uncertain.
If the drawings are less than 90% complete, a lump sum bid usually carries a large risk premium that you pay for in the contract price. Cost-plus can be cheaper in that situation, but only if you enforce cost reporting.
Guaranteed Maximum Price and Hybrid Contracts
A guaranteed maximum price contract (GMP) is a cost-plus contract with a ceiling price. The contractor is reimbursed for actual costs up to the GMP, and any costs above the GMP are absorbed by the contractor unless they result from owner-directed changes. This gives the owner price protection while keeping the cost-plus reimbursement mechanism.
Many GMP contracts include a shared savings clause. If actual costs come in below the GMP, the owner and contractor split the savings, often 50/50 or 75/25. For example, on a $5,000,000 GMP with a 50/50 split, if actual costs plus fee total $4,700,000, the $300,000 savings is split $150,000 to the owner and $150,000 to the contractor. The contractor has an incentive to control costs, and the owner shares in the upside.
GMP requires a complete scope definition at the time the GMP is set, often after design development. If the scope is not defined, the GMP is either padded with contingency or set so high that it provides little value. A cost plus fixed fee contract is a simpler alternative: the fee is fixed, but costs are reimbursed with no ceiling. The owner carries the risk of cost overruns but avoids the negotiation over what is included in the GMP.
GMP contracts often include allowances and contingencies that are reconciled at closeout. Allowances cover items not yet selected, such as finishes or fixtures, and are adjusted to actual cost with the appropriate fee. Contingency covers unforeseen conditions and is drawn down through change orders. At closeout, unused contingency may be returned to the owner or shared per the contract terms. A construction cost estimating service can help you set a realistic GMP by validating quantities and pricing before the ceiling is fixed.
A GMP without a well-defined scope is not a guarantee. It is a number that will be tested by change orders. Lock the scope before you lock the GMP.
Common Mistakes and Risks in Both Contract Types
- Weak cost reports in cost-plus. If the contractor does not provide detailed, timely cost reports, the owner cannot verify charges or catch overruns early. Require monthly reports that break out labor, material, equipment, and subcontractor costs by cost code. This is a core part of what is a cost plus contract: the owner buys transparency, so the reporting must actually deliver it.
- No audit rights. A cost-plus contract without audit rights leaves the owner unable to verify reimbursable costs. Include the right to audit books and records, and define what counts as a reimbursable cost versus a general conditions or overhead item.
- Percentage fees that encourage overspending. A fee calculated as a percentage of cost gives the contractor more money as costs rise. This is a structural conflict. Fixed fees or sliding-scale fees reduce the incentive to let costs grow. For a cost plus contract for contractors, the fee structure also affects cash flow and risk, so negotiate the fee basis and billing cycle together.
- Incomplete scope of work in fixed-price. A fixed-price contract with an incomplete scope of work invites change orders or disputes. Every bid document, specification section, and drawing sheet should be listed and referenced in the agreement. These are the fixed price contract risks that show up most often: gaps in the documents become someone else's change order.
- Missing bid documents. If the contractor bids from a partial set, the price is based on assumptions that may not match the actual requirements. Confirm that all addenda, clarifications, and bid documents are included before signing. A clear request for proposal that lists every document and addendum reduces this risk.
- Unrealistic schedules. A fixed-price contract with an unrealistic schedule forces the contractor to accelerate or claim delay. Build the schedule from production rates, not from the owner's desired completion date.
- Underfunded contingencies. Both contract types need a contingency. In fixed-price, the contractor's contingency is hidden in the price. In cost-plus, the owner's contingency is visible. In both cases, a contingency that is too small leads to change orders or claims.
- Vague change order procedures. Both contract types fail when the change order process is unclear. Define who can authorize a change, what documentation is required, and how the cost is priced before the work begins. A change order estimating service can help you price changes consistently.
- Missing lien waiver requirements. Progress payments should be conditioned on lien waivers from the contractor and major subcontractors. Without them, the owner can pay twice for the same work.
- Unclear retainage terms. Retainage percentages, reduction schedules, and release conditions should be stated in the contract. Ambiguity here leads to cash flow disputes at closeout.
- Unclear general conditions and indirect costs. In cost-plus contracts, disputes often arise over what is a direct job cost versus a general conditions or overhead cost. Define both in the contract, including items like temporary facilities, small tools, and home office overhead. A cost plus vs fixed price calculator can help you model how indirect costs and fee interact under each structure before you sign.
Fixed-price contracts can fail if the contractor underprices risk and later seeks change orders or claims. A low fixed price is not a guarantee if the contractor cannot perform at that price.
How to Choose a Construction Contract
Use this checklist to decide between cost-plus and fixed-price. It covers the factors that drive risk allocation, price certainty, and administration effort.
- Design completeness. If the design is less than 60% complete, cost-plus or GMP is usually safer than fixed-price. A firm price on incomplete documents forces the contractor to pad contingency or qualify the bid heavily.
- Schedule urgency. If you need to start construction before documents are finished, cost-plus lets you begin early with allowances and unit prices. Fixed-price requires enough definition to price the full scope.
- Owner risk tolerance. Fixed-price transfers cost risk to the contractor. Cost-plus keeps cost risk with the owner but gives transparency. Decide how much uncertainty you can carry.
- Market competition. In a competitive bid market, fixed-price gives you comparable lump sums. In a tight market, contractors may decline fixed-price or add large contingencies, making cost-plus or GMP more realistic.
- Internal cost-control capability. Cost-plus demands that you or your representative review cost reports, approve invoices, and audit open book accounting. If you lack that capacity, fixed-price or GMP with a cap is easier to administer.
- Financing and public bid requirements. If you need a firm price for a construction loan or a public bid, fixed-price is required. Lenders and public agencies generally will not accept an open-ended cost-plus contract.
- Transparency and collaboration. If you want to see actual costs and work collaboratively on value engineering, cost-plus with open book accounting works well.
- Ceiling with flexibility. If you want a ceiling but some flexibility, GMP is the middle path. It caps the contractor's price while allowing shared savings and defined allowances.
Whichever type you choose, define the scope of work, schedule of values, change order process, and cost reporting requirements in the contract documents. These four items prevent most disputes. A construction estimating consultant can help you test the budget against the contract type before you sign.
If design is below 60% complete, do not force a fixed-price bid without clear qualifications. You will pay for the missing information through contingencies or change orders.
Cost-Plus Contracts for Contractors: What to Watch
A cost-plus contract can reduce your bid risk because you are reimbursed for actual costs plus a fee. That advantage disappears if your cost tracking is loose. You must track direct cost, indirect cost, and overhead and profit separately, often using construction estimating software and a monthly cost report. If your records cannot show what was spent and why, the owner can dispute reimbursements and delay payment.
Open book accounting means the owner can audit your invoices, payroll, and equipment rates. Keep clean records for every cost you pass through, including material invoices, timesheets, and rental agreements. Markups on equipment and small tools should follow the rates stated in the contract, not ad hoc percentages.
Fee structures matter. A cost plus fixed fee protects your fee from scope changes, while a cost plus percentage of cost can increase fee as costs rise but may be capped by the owner. Read the cap language carefully. If the fee is a percentage, define the cost base so you are not charging fee on your own fee or on disputed back charges.
Ensure your contract defines reimbursable costs clearly, including supervision, small tools, and insurance. Items that are normally part of overhead can become a loss if the contract is silent. A subcontractor estimating service can help you build the original cost model that supports your fee and reimbursables.
Before signing, list every cost you expect to incur and mark it reimbursable or not. Ambiguity here is the most common source of cost-plus disputes.
Estimating and Takeoff for Cost-Plus vs Fixed-Price
The contract type changes how you estimate, not whether you estimate. For fixed-price, you need a complete quantity takeoff and pricing for every CSI MasterFormat division in the scope. Missing quantities or omitted divisions come directly out of your margin. For cost-plus, you still need a detailed estimate to set the GMP, fee, or budget, but you may use allowances and unit prices for undefined work. Allowances should state the basis of quantity and quality so the owner understands what is included.
Use Uniformat for early conceptual estimates and CSI MasterFormat for detailed bid estimates. Uniformat organizes work by building element, such as foundations or exterior enclosure, which fits early design. CSI MasterFormat organizes work by trade and material, which fits buyout and subcontractor pricing. AACE estimate classes help define accuracy: Class 5 (0–2% definition) is a rough order of magnitude, while Class 1 (65–100% definition) supports a firm price. Matching the estimate class to the contract type prevents false precision.
Construction estimating software and BIM takeoff improve accuracy for both contract types. Model-based takeoff reduces manual quantity errors and speeds up revisions when the design changes. For fixed-price bids, that accuracy protects margin. For cost-plus, it gives the owner a defensible budget and a clear baseline for change orders. Use a quantity takeoff service for complete division-by-division quantities, and BIM estimating services when the model is reliable enough to extract quantities directly.
Do not use a Class 5 conceptual estimate as the basis for a fixed-price contract. The accuracy range is too wide to protect either party.
When to Get a Professional Estimate or Takeoff
If you are bidding a fixed-price contract, a detailed takeoff and estimate reduce the risk of underpricing. Without a line-by-line quantity takeoff, you are guessing at material quantities, labor hours and productivity. That guess can turn a winning bid into a loss before the first invoice. A professional construction takeoff gives you measured quantities you can price with confidence.
If you are negotiating a cost-plus or GMP contract, an independent estimate validates the budget and fee. The owner and contractor both benefit from a third-party check on the cost basis. An independent construction estimating review can catch missing scope, double-counted items or unrealistic allowances. It also gives you a defensible number if the fee or contingency is challenged later.
If you lack in-house estimating capacity, outsourcing a takeoff or full estimate can be faster and more accurate. Many contractors run lean and cannot keep a full-time estimator on staff. A dedicated bid estimating partner can turn around a complete estimate while you focus on field operations and client relationships. You get consistent format, clear assumptions and a number you can defend.
Scope Precision Estimate offers same-day quotes, bid-ready estimates in 48 hours, and 20% off for new clients. Most projects turn around in 24–48 hours, and rush service is available when a bid deadline is close. You can upload plans and get a quote the same day. For cost-plus vs fixed price decisions, a reliable estimate is the common ground.
Use a professional estimate when the contract type puts your margin at risk. Fixed-price rewards accurate takeoff; cost-plus rewards transparent cost tracking. In both cases, the estimate is the foundation. Get the quantities right, and the contract terms become a business decision rather than a gamble.
Even under cost-plus, an independent takeoff protects you from disputes over quantities and change orders. It is not just a bid tool; it is a risk management tool.
Frequently asked questions
What is the difference between cost-plus and fixed-price contracts?
A cost-plus contract reimburses the contractor for actual, documented costs plus an agreed fee, so the owner carries cost-overrun risk. A fixed-price (lump sum) contract sets one price for a defined scope, so the contractor carries that risk. Cost-plus suits undefined or fast-moving scopes; fixed-price suits well-documented scopes where the contractor can price accurately. The choice changes incentives, cash flow, and how much estimating detail each side needs before signing.
Is a cost-plus contract better for renovation projects?
Often yes, because renovation scope is hard to define before demolition. Concealed conditions, like deteriorated framing or outdated wiring, surface mid-project and are difficult to price into a lump sum without large contingencies. Cost-plus lets the owner pay actual costs for that work plus a fee, keeping pricing transparent. It works best when the owner has a realistic budget and reviews costs regularly. See our guide to renovation contractor estimating for how scope uncertainty is handled.
How does a guaranteed maximum price (GMP) contract work?
A GMP sets a ceiling on the owner's cost. The contractor is reimbursed actual costs plus a fee up to that cap; savings below the cap are shared or kept per the agreement. If costs exceed the GMP, the contractor typically absorbs the overrun unless the owner directed changes. GMP blends cost-plus transparency with fixed-price protection, but it requires a well-defined scope and contingency. It is common on negotiated commercial work.
What is a cost-plus percentage of cost contract?
In a cost-plus percentage contract, the fee equals a fixed percentage of actual costs, such as cost plus 10%. The contractor is paid cost times (1 + percentage). The main criticism is that the fee grows as costs grow, which can weaken the incentive to control spending. Owners often prefer a fixed fee or a sliding scale instead. Percentage-of-cost structures are simple to administer but need strong cost review.
What are the risks of a fixed-price contract for contractors?
The contractor absorbs any cost overrun, so an incomplete takeoff, missed scope, material escalation, or labor inefficiency comes straight out of margin. Fixed-price also penalizes underestimating. Risks include scope gaps, unclear drawings, long lead times, and change orders that are disputed rather than paid. A thorough construction takeoff service and clear exclusions reduce that exposure before you sign.
Can you convert a cost-plus contract to a fixed-price contract?
Yes, once scope is defined enough to price. A common path is to start cost-plus for design or early work, then convert the remaining scope to a fixed price or GMP when drawings and specifications are complete. The conversion needs a clear scope split, agreed exclusions, and a documented basis of estimate. Converting too early, before scope is firm, just moves the same uncertainty into a lump sum with a bigger contingency.
What is open book accounting in construction?
Open book accounting means the contractor shares actual cost records, like invoices, purchase orders, payroll, and subcontractor quotes, with the owner. It supports cost-plus and GMP contracts by letting the owner verify reimbursable costs and the fee calculation. It requires organized job cost coding and timely reporting. Open book does not mean the contractor works without profit; it means the cost basis is transparent. Our construction cost estimating work is often built to support that level of detail.
How do you calculate the fee in a cost-plus contract?
The fee depends on the structure. Cost plus a fixed percentage: fee = actual cost × percentage, so $500,000 × 10% = $50,000, and total pay = $550,000. Cost plus a fixed fee: total pay = actual cost + fixed fee, so $500,000 + $50,000 = $550,000 regardless of cost. Cost plus a sliding fee ties the percentage to a cost target, rewarding savings. Always confirm which costs are fee-bearing.