Cost plus fluctuating fee contract Clause Samples
A cost plus fluctuating fee contract is a contractual arrangement where the contractor is reimbursed for actual project costs incurred, in addition to receiving a fee that varies based on certain performance metrics or cost savings. Typically, the fee may increase if the contractor meets or exceeds specific targets, such as completing the project under budget or ahead of schedule, and may decrease if targets are missed. This type of clause incentivizes the contractor to control costs and improve efficiency, while also providing flexibility to adjust compensation based on project outcomes, thereby aligning the interests of both parties and managing the risk of cost overruns.
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Cost plus fluctuating fee contract. In this type of contract the contractor is paid by the owner the actual cost of construction, plus an amount of fee inversely variable according to the increase or decrease of the estimated cost as agreed first by both the parties. Thus higher the actual cost lower will be the value of fee and vice-versa. Since the interest of the contractor is totally involved he would not try to increase the actual cost as in cost plus percentage rate and also he would not be indifferent as in case of cost plus fixed fee contract. So in this case the actual cost is lower and both the owner and the contractor are benefited. This is the best of the cost plus type contracts. In this case actual cost must be very accurately determined. In case the estimate is much higher than the actual cost due to the inefficiency of the estimator a contractor will get more amounts on the basis of savings and vice-versa.