Federation of Master Builders Cost Plus Contract

A cost plus contract can be an excellent option for construction projects where flexibility, transparency, and collaboration are more important than locking in a fixed price from the outset.

What Is an FMB Cost Plus Contract?

A Cost Plus Contract is a procurement and pricing arrangement where the client pays the actual cost of completing the construction works, plus an agreed fee to the contractor for management, overheads, and profit.

Unlike a fixed-price contract, where a total contract sum is agreed before construction begins, a cost plus contract reflects the actual costs incurred throughout the project. This approach allows construction work to commence even when designs, specifications, or project requirements are still evolving.

Cost plus contracts are commonly used for bespoke homes, renovations, extensions, refurbishment projects, commercial fit-outs, and complex developments where there may be unknown risks or changing requirements.

How Does a Cost Plus Contract Work?

Why Choose a Cost Plus Contract?

With a cost plus contract, the contractor records and submits all project-related costs to the client. These costs are then reimbursed along with an agreed contractor's fee.

Typical Reimbursable Costs Include:

Construction labour
Materials and supplies
Plant and equipment hire
Specialist subcontractors
Site establishment costs
Temporary works
Waste removal and disposal
Delivery and transportation charges
Project management costs where agreed
Insurance and statutory fees where specified in the contract

The contractor then receives an additional fee for managing and delivering the project.

1. Greater Cost Transparency

One of the biggest advantages of a cost plus arrangement is transparency.

Clients can see exactly where their money is being spent through:

Supplier invoices
Subcontractor quotations
Labour records
Plant and equipment costs
Progress reports

This "open-book" approach allows complete visibility of project expenditure throughout the build.

2. Flexibility During Construction

Many construction projects evolve as work progresses.

Design changes, upgraded finishes, additional works, or unforeseen site conditions can all affect costs and programme requirements.

A cost plus contract allows these changes to be incorporated more easily without the need for lengthy negotiations or constant contract variations.

3. Faster Project Commencement

Fixed-price contracts often require a complete design package and detailed specifications before pricing can be finalised.

With a cost plus contract, construction can begin sooner while remaining design elements are being developed.

This can significantly reduce programme delays and enable clients to take advantage of favourable construction schedules.

4. Better Quality Outcomes

Because the focus is not solely on delivering within a fixed contract sum, contractors can prioritise quality, workmanship, and long-term value.

Clients also have the flexibility to make decisions as the project progresses without worrying about expensive variation mark-ups.

5. Ideal for Complex and Uncertain Projects

Certain projects involve a high degree of uncertainty that makes fixed-price tendering difficult.

Examples include:

Heritage building restoration
House renovations
Building extensions
Commercial refurbishments
High-end residential projects
Projects with incomplete designs
Developments with unknown site conditions

In these situations, a cost plus contract often provides a fairer and more practical procurement route.

Responsibilities of the Contractor

Responsibilities of the Client

Is a Cost Plus Contract Right for Your Project?

Under a cost plus arrangement, the contractor is responsible for:

Managing and coordinating the project
Procuring labour and materials
Engaging subcontractors
Maintaining project records
Providing cost reporting
Managing quality and health and safety
Delivering the project in accordance with the agreed scope

Regular communication and accurate reporting are essential to ensure the client remains informed throughout the construction process.

The client plays a more active role than under many traditional fixed-price contracts.

Clients should:

Review cost reports and invoices
Approve significant expenditure where required
Make decisions promptly
Monitor project budgets
Collaborate with the project team

This collaborative approach often results in better project outcomes and fewer disputes.

A cost plus contract can be an excellent choice when quality, flexibility, and transparency are priorities. It enables projects to move forward quickly while providing clear visibility of actual construction costs and allowing informed decisions to be made throughout the build.

For projects with evolving designs, complex requirements, or uncertain site conditions, a cost plus approach often delivers greater value and a more collaborative working relationship between client and contractor.