Cost-Plus Contract
A construction contract where the owner pays the actual project costs plus an agreed fee or percentage for the contractor's overhead and profit.
A cost-plus contract (also called time-and-materials) requires the homeowner to reimburse the contractor for all documented project costs—labor, materials, subcontractors, permits—plus either a fixed fee or a percentage markup (typically 10–25%) for overhead and profit. The homeowner takes on cost risk because the total is not fixed upfront.
Cost-plus is appropriate when the scope is genuinely undefined at the start, such as a gut renovation with many unknowns, or when the homeowner wants maximum flexibility to make decisions during construction. It can also be the only option when contractors are reluctant to bid a firm price on highly uncertain work.
The risk to the homeowner is an open-ended final cost. To manage this, a cost-plus contract should include a guaranteed maximum price (GMP), require detailed invoices for all costs, and give the homeowner audit rights. Without these protections, cost-plus can result in significantly higher-than-expected bills.
Real-World Example
Because the Victorian home's condition was unknown until demolition, the general contractor proposed a cost-plus contract with a $95,000 guaranteed maximum price.