A cost-plus contract has a fee of 8% and includes reimbursable costs of $750,000. If the contractor also incurs $25,000 in non-reimbursable costs, what is the contractor's total compensation?
Correct Answer
C) $810,000
In a cost-plus contract, the contractor receives reimbursement for allowable costs plus the agreed fee. Total compensation = $750,000 (reimbursable costs) + ($750,000 × 8% fee) = $750,000 + $60,000 = $810,000. Non-reimbursable costs are not included in compensation.
Why This Is the Correct Answer
In a cost-plus contract, the contractor's total compensation consists of two components: reimbursement for allowable costs and the agreed-upon fee percentage. The fee is calculated only on the reimbursable costs, not on non-reimbursable costs. Non-reimbursable costs are expenses the contractor must absorb and do not affect the compensation calculation. Therefore, total compensation = $750,000 (reimbursable costs) + $60,000 (8% fee on reimbursable costs) = $810,000.
Why the Other Options Are Wrong
Option A: $800,000
This adds the fee ($60,000) to the reimbursable costs but then subtracts the non-reimbursable costs, which is incorrect since non-reimbursable costs don't reduce compensation.
Option D: $835,000
This only includes the reimbursable costs plus the non-reimbursable costs but fails to include the 8% fee that the contractor is entitled to receive.
Memory Technique
Think 'Cost-Plus = Pay Back + Pay Extra' - you pay back allowable costs and pay extra (the fee), but you don't pay for what's not allowed (non-reimbursable costs)
Reference Hint
Florida Building Code, Chapter 4 - Contract Types and Payment Methods, or AIA Contract Documents section on Cost-Plus contracts
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