In a cost-plus-fee contract, what is the contractor's primary obligation regarding project costs?
Correct Answer
B) To provide detailed documentation and accounting of all reimbursable costs
In cost-plus contracts, the contractor must maintain detailed records and provide transparent accounting of all costs since the owner reimburses actual costs plus a fee. This documentation is essential for payment and audit purposes.
Why This Is the Correct Answer
In cost-plus-fee contracts, the contractor is reimbursed for actual project costs plus a predetermined fee. Since the owner pays for actual costs rather than a fixed price, the contractor has a legal and contractual obligation to maintain meticulous records of all expenses. This documentation serves as proof of legitimate costs and enables proper reimbursement. Without detailed accounting, the owner cannot verify costs and the contractor cannot receive proper payment.
Why the Other Options Are Wrong
Option C: To share cost savings equally with the owner
In cost-plus contracts, the owner, not the contractor, typically absorbs cost overruns since they reimburse actual costs. The contractor is protected from cost risk, which is why detailed documentation is so crucial for reimbursement.
Option D: To absorb any cost overruns beyond the original estimate
Cost-plus contracts do not require contractors to guarantee maximum costs - that would be a guaranteed maximum price (GMP) contract. In pure cost-plus arrangements, costs can vary and the owner bears the risk of cost overruns.
Memory Technique
Think 'Cost-Plus = Paperwork Plus' - the contractor gets reimbursed PLUS a fee, but only with detailed paperwork to back up every cost
Reference Hint
Construction Contract Administration chapter or Project Delivery Methods section covering cost-plus contract types
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