Contracts & ExecutionQuestion 820 of 1605
Under a cost-plus contract, the contractor is typically paid:
a.Nothing until the project is fully sold
b.The actual cost of labor and materials plus an agreed fee or percentage for overhead and profit
c.A single fixed lump sum regardless of actual cost
d.A price per installed unit of measure
Explanation
In a cost-plus contract, the owner reimburses the contractor's actual, documented costs of labor and materials and pays an additional agreed fee, either a fixed amount or a percentage, for overhead and profit. This shifts cost risk toward the owner while giving flexibility on uncertain scopes. It differs from a lump-sum (one fixed total), unit-price (per unit), and speculative arrangements; careful cost documentation is essential to justify billings.
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Sen Lin, PrepPass Founder · Verified against California CSLB Contractor License Law & Business Exam · How we review
Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)