Cost Plus Percentage Rate Contract- Advantages, Disadvantages, And When To Use?
As we know a contract is a legal agreement between two parties in the written and signed format and the contract must be enforceable by law.
Cost Plus Percentage Rate Contract
The contract is called a cost-plus percentage rate contract if the contractor arranges the materials and labour on his own money and he makes a proper note of all expenses and at the end of construction work, the contractor is paid by the owner or department of the total cost of work plus some agreed profit around 10%.
Let’s dive into the advantages and disadvantages of the cost-plus percentage rate contract-
Advantages Of Cost Plus Percentage Rate Contract
The main advantage of the cost plus percentage rate contract is the construction project is completed in a possible short time.
The second advantage of the cost plus percentage rate contract is it is well suited during the war period when the cost of the project is not more important than the completion of projects in the minimum possible time.
The third advantage of the cost plus percentage rate contract is when the work is not executed by any contractor due to the heavy fluctuation in the cost of materials and labour then the const plus percentage rate contract is used.
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Disadvantages Of Cost Plus Percentage Rate Contract
The main disadvantage of the cost plus percentage rate contract is the contractor tries to make the project cost very high in order to seek greater profit.
The second disadvantage of the cost plus percentage rate contract is that the owner or department must have control over the purchase of materials.
More Read- Advantages And Disadvantages Of Percentage Rate Contract
When Would You Use Cost Plus Percentage Rate Contract ?
In civil engineering construction management, the Cost Plus Percentage Rate Contract is generally adopted when the labour and material costs are tending to fluctuate heavily in the market.
This type of contract is also adopted when the owner or department wants to invest money after the completion of construction work.
More Read- Advantages And Disadvantages Of Item Rate Contract.
Frequently Asked Question(FAQ)
The cost-plus percentage rate contract is a contract in which the contractor invests his money on labour and material and is paid by the owner at the end of the project with some agreed profit.
The main advantage of the cost plus percentage rate contract is the construction project is completed in a possible short time.
The disadvantage is the contractor tries to make the project cost very high in order to seek greater profit.