Cost-plus answers the hardest question in this site.

Cost-plus answers the hardest question in this site

Cost & Cash Week 1 opened with four words that ran under the next twenty-three: nobody knows what you have spent. Committed, incurred, accrued, certified, paid — five numbers, all called cost, none of them agreeing on a Tuesday in month four.

Now put the same job on a cost-plus contract, and that problem dissolves. Your actual cost is the invoice you send. You know it to the hour, because you are being paid for exactly what you record.

And you have bought a worse problem, because a number somebody else pays is a number somebody else audits. On lump sum nobody asks how you priced the rock. On cost-plus somebody asks about every hour of the rig that hit it.

Three weeks of this track have quietly assumed one pricing model. It's time to say so, because the model decides what cost control actually is.

Lump sum: the model everything so far assumed

Under a lump sum you give a price for a scope. If the work takes more than you thought, that's yours. If it takes less, that is also yours.

Two of the three FIDIC 2017 books work this way. Yellow and Silver price the works as a lump sum, and neither carries a measurement clause or a bill of quantities. You priced the design outcome, not the quantities inside it.

Everything in Track 2 was built on this. The $47,553 of contingency in Cost & Cash Week 5 was yours to keep or lose. The $124,051 of overhead and profit in Cost & Cash Week 6 was buried inside the rates, which is precisely why dividing invoices by the sell rate meant dividing by your own profit. And the $48,163 of net margin at the end was what survived.

Remeasurement: the quantity is the argument

The Red Book does something different. It carries a bill of quantities and a whole clause on measurement and valuation — works to be measured, the method, the valuation, and omissions.

The shift is narrow but it moves a lot. You still own the rates; you no longer own the quantities. Price fifty piles and drive sixty, and you get paid for sixty. That's a genuine protection, and it is the reason so much heavy civils work is let this way.

It also creates the problem Cost & Cash Week 12 spent a whole article on: most of your cost ends up measured by somebody who wants your money. Under remeasurement that sentence stops being a warning about subcontractors and becomes the mechanism of your own income.

Cost-plus: you get the number, then you prove it

On a cost-reimbursable contract the employer pays what the work costs, plus an agreed fee. There's no FIDIC 2017 form for this — you will meet it in bespoke agreements, in emergency and enabling works, and as one of the NEC options.

The inversion is total. Cost control stops being a forecasting discipline and becomes an evidential one. Nobody needs an estimate to compare against; they need timesheets that survive an audit, plant records that match the gate log, and an allocation of overhead that somebody outside the company will accept.

It also removes the upside. There is no unspent contingency to keep, because there wasn't one — risk sits with the employer, and so does the saving. Your margin is the fee, and the fee is a number in the agreement rather than something you earned by being clever.

Target cost: your contingency stops being yours

Target cost sits between the two and is the most misunderstood of the four. The parties agree a target. Actual cost is reimbursed as it is incurred, and at the end the difference between target and actual is split between them on an agreed ratio.

Beat the target and you share the saving. Overrun it and you share the pain. That single mechanism changes what a contingency is.

Cost & Cash Week 5 called contingency the pot everybody raids, and the argument was internal — the site wanted it, the estimator wanted it protected, the commercial team wanted it invisible. Under a target contract the employer joins that argument, with a contractual right to. The $47,553 is no longer a private allowance. It is a number both sides can see and both sides have money riding on.

Which means the discipline Track 2 taught for internal reasons becomes a contractual obligation. Miscode a cost and you haven't just confused your own report; you have moved somebody else's money.

Cost Plus Profit is not a cost-plus contract

Here is a trap worth the whole article, and it is Week 2's lesson doing real work.

The phrase Cost Plus Profit appears in the Red Book twenty-eight times. It looks like a contract type. It's a defined term, and it means something much narrower: your Cost, plus a percentage for profit taken from the Contract Data. If nobody wrote a percentage in, the contract supplies five percent.

It's a valuation basis for particular entitlements, not a pricing model for the job. A lump sum contract can pay you Cost Plus Profit for a dozen separate matters and remain a lump sum contract throughout.

And notice why the term has to exist at all. Sub-clause 1.1 defines Cost as expenditure reasonably incurred, taxes and overheads included — and expressly excludes profit. So whenever the contract wants you to have profit as well, it can't just say Cost. It has to say the other thing.

Practical insight

Before your next job starts, answer four questions in writing, because they change what your team should be doing every week.

Who owns the quantities? If the answer is the employer, your measurement discipline is your income and it needs to be as good as your programme. If the answer is you, your estimate is a promise and the variance report is the story of keeping it.

Where is the profit? If it is buried in the rates, Cost & Cash Week 6's warning applies and you must control against net cost. If it is a stated fee, that error is impossible and your reporting gets simpler.

Who keeps the contingency? Write the answer down and tell the site team, because on a target contract the informal raiding that every project does becomes a matter somebody can raise formally.

And what does an auditor get to see? On cost-plus and target contracts, records you assembled for yourself are now evidence. That's Week 1's contemporary records rule arriving from a different direction and applying to everything, not just claims.

Key takeaways

✔ The pricing model decides what cost control is: a forecast under lump sum, a measure under remeasurement, a proof under cost-plus, a shared bet under target cost.

✔ Yellow and Silver price as lump sums. Red remeasures against a bill of quantities and carries a full measurement and valuation clause.

✔ Under remeasurement you keep the rate risk and hand back the quantity risk — which makes measurement your income, not just your paperwork.

✔ Cost-plus answers Cost & Cash Week 1's question and replaces it with a harder one: every number you report is now audited by the person paying it.

✔ On a target contract the contingency stops being a private allowance. Both parties have money riding on it, so coding errors move somebody else's cash.

✔ Cost Plus Profit is a defined term for valuing entitlements, not a contract type. The percentage comes from the Contract Data, and defaults to five percent.

✔ Sub-clause 1.1 defines Cost to exclude profit. That single exclusion is why the contract needs a separate term whenever profit is meant to be included.

What's coming next

Phase A closes here. You can find the governing provision, you know who decides and how long you have to disagree, and you know what the pricing model does to all of it. Phase B starts with the thing the contract is actually made of: obligations. Not the famous ones about completing the works, but the specific, dated, often-ignored duties each side signed up to — site access, drawings, permits, and the ones the employer owes you. Next week we go through what each side actually promised, and what happens on the day one of them does not deliver.