WHAT IS A COST-PLUS-FIXED-FEE AGREEMENT?
The Cost-Plus-Fixed-Fee agreement is, in my opionon, fair to the owner because it provides him with the opportunity to pay only for the actual cost of the work, plus a “fixed fee” covering the contractor’s profit and overhead. With this type of agreement the contractor has no financial incentive to increase project cost since he is not paid a percentage of these higher cost. Rather, the contractor has an incentive to perform the work quickly and well because the sooner he completes the job, the sooner he collects the balance of his fixed fee and begins another project. If he can save the owner money through more efficient methods which require less labor, use materials more efficiently or if the owner is able to purchase materials at a discounted price then the owner will retain those savings. Also, if the owner doesn’t have a fully detailed set of plans, which is often the case or wants the contractor to spend more time on value engineering – that is, common sense cost-saving ideas –
