The Ultimate Guide to Cost-Plus-Percentage Agreements

Cost-plus-percentage agreements, also known as CPP agreements, are a common type of contract in the construction industry. Involve contractor paid actual cost work plus percentage cost profit. Type agreement beneficial contractor client, comes set risks challenges.

Understanding Cost-Plus-Percentage Agreements

Cost-plus-percentage agreements used scope work well-defined project involves high level uncertainty. This type of contract allows the contractor to be reimbursed for all costs incurred during the project, including materials, labor, and overhead, plus an additional percentage as profit.

While this arrangement provides a degree of flexibility and transparency, it can also lead to potential conflicts of interest. Contractor incentive increase costs order boost profits, client question legitimacy expenses.

Benefits Risks

On the one hand, cost-plus-percentage agreements can benefit the client by providing more control over the project and allowing for changes to be made as necessary. Contractor, other, guaranteed compensated costs incurred potential earn higher profit project goes smoothly.

However, type contract comes inherent risks. Clear scope work, project may end expensive anticipated, client feel little control costs. Addition, disputes percentage fee legitimacy expenses lead strained relationships contractor client.

Case Studies

Let`s take a look at some real-life examples of cost-plus-percentage agreements in action:

Cost-plus-percentage agreements can be a useful tool in the construction industry, but they require careful consideration and clear communication between the contractor and the client. Both parties should be aware of the potential benefits and risks involved, and steps should be taken to mitigate conflicts and disputes throughout the project.

Cost-Plus-Percentage Agreement Contract

This Cost-Plus-Percentage Agreement («Agreement») is made and entered into as of [Date], by and between [Contractor Name], a [State of Incorporation] corporation, having its principal place of business at [Address] («Contractor»), and [Client Name], a [State of Incorporation] corporation, having its principal place of business at [Address] («Client»).

1. Scope Work

Contractor agrees to perform all labor, services, and furnish all materials necessary for the completion of the project in accordance with the plans and specifications prepared by [Architect/Engineer Name] and approved by Client. Contractor shall adhere to all applicable laws, regulations, and codes in the performance of the work.

2. Cost-Plus-Percentage

Client agrees to pay Contractor for the completion of the project on a cost-plus-percentage basis. The total cost of the project shall include the direct cost of labor and materials, all subcontractor costs and fees, and an additional percentage as outlined in Attachment A.

3. Payments

Client shall make progress payments to Contractor based on the percentage of completion of the project as determined by Architect/Engineer. Final payment shall be made within 30 days of completion and acceptance of the project by Client.

4. Termination

This Agreement may be terminated by either party upon written notice in the event of a material breach by the other party. In the event of termination, Client shall pay Contractor for all work performed and expenses incurred through the date of termination.

5. Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of [State], without regard to its conflicts of law principles.

6. Entire Agreement

This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether oral or written.

Frequently Asked Legal Questions About Cost-Plus-Percentage Agreement