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Amensa Group Company
COST PLUS Service
Contracts with the "Coast Plus" system in the field of contracting and construction
Introduction
Cost Plus Contracts are a common model in the contracting and construction industry, where the actual costs of the project are paid to the contractor with the addition of an agreed profit percentage. This system aims to ensure quality and reduce the risks to the contractor, but in return it may lead to an increase in costs if there are no strict controls.
First: Definition of the "Coast Plus" contract
It is a contract between the owner and the contractor under which the contractor is compensated for the actual costs spent on the project, plus a percentage or fixed amount as profits.
Types of contracts "Coast Plus"
- Cost Plus Percentage Contract – The contractor receives compensation for actual costs plus an agreed percentage as profits. – Its main disadvantage is that the contractor may not have an incentive to reduce costs.
- Cost Plus Fixed Fee Contract – The contractor receives a fixed amount as profits regardless of the final costs of the project. – This type reduces the risk of increased costs for the owner but may not encourage the contractor to reduce expenses.
- Cost Plus Guaranteed Maximum Price (GMP) – A maximum total cost of the project is set, and if the costs exceed this limit, it is borne by the contractor. – This model motivates the contractor to improve cost management and increase efficiency.
- Cost Plus Incentive Fee Contract – Includes additional incentives for the contractor if the project is completed within budget or ahead of schedule.
Second: Advantages and disadvantages of the "Coast Plus" system in contracting
Advantages
✅ Flexibility in design and modifications – Allows modifications during implementation without the need to renegotiate the contract.
✅ Reduce contractor risk – He receives compensation for all actual costs, encouraging him to implement the project without worrying about losses.
✅ Quality Assurance – The contractor does not need to reduce costs to make profits, which can lead to the use of high-quality materials.
✅ Stimulating innovation – Allows contractors to offer new solutions because they are not constrained by a predetermined price.
Defects:
❌ Potential for increased costs – without strict control, may lead to budget overruns.
❌ Complexity of audits and accounting processes – requires careful documentation of all expenses, which increases the administrative burden.
❌ Poor incentive to reduce costs – especially in Coast Plus percentage contracts because increased costs mean increased contractor profits.
Third: The uses of "Coast Plus" contracts in the construction sector
This system is used in the following cases:
✔ Complex and unprecisely costed projects such as mega infrastructure projects.
✔ Projects that need to be implemented quickly where it is difficult to determine the total costs in advance.
✔ Projects that require the use of unconventional materials or techniques.
Fourth: Strategies to improve the efficiency of "Coast Plus" contracts
- Determine an estimated budget in advance – to set spending limits.
- Using the “Coast Plus with Incentives” mechanism – to motivate the contractor to reduce costs and improve performance.
- Conduct periodic cost reviews – to ensure transparency and control of expenditures.
- Define a maximum price (GMP) – to adjust project costs.
