What is a major characteristic of Cost-Plus contracts?

A major characteristic of Cost-Plus contracts is the defined profit structure. In these types of contracts, the client agrees to reimburse the contractor for all incurred costs related to the project while adding a predetermined fee that represents the contractor's profit. This structured approach allows for transparency in how costs are calculated and how profits are derived, which can be beneficial for both parties. Since the profit is based on a fixed percentage or fee added to the costs, it provides a clear understanding of how the overall expenses will translate into contractor earnings.

This method can lead to more collaborative relationships, as the contractor is incentivized to manage costs effectively while ensuring quality work is completed. Setting an explicit profit structure can also help in avoiding disputes arising from cost escalation, making it a key aspect of Cost-Plus contracts.