Cost-plus billing

Définition

Under cost-plus billing the supplier invoices the actual cost of labour, materials and subcontractors plus an agreed fee or percentage margin. It shifts cost-overrun risk to the client and is suited to work whose scope cannot be defined in advance. Cost-plus arrangements usually require open-book accounting and audit rights so the client can verify the underlying costs.

Exemple

A renovation of unknown scope is invoiced on a cost-plus basis at actual hours times the rate card plus a 10% overhead fee.

Pourquoi c'est un risque pour l'entreprise

Cost-plus contracts give suppliers little incentive to control costs, since every additional cost increases the base on which the margin is applied. Without strong audit rights and reporting requirements, clients can face runaway invoices with limited ability to challenge them. For suppliers, failing to track actual costs accurately exposes them to disputes about what was properly incurred.

Comment le gérer

• Define which costs are reimbursable and which are included in the overhead fee, to prevent disputes about what falls inside or outside the base.
• Require the supplier to submit detailed cost breakdowns with each invoice, supported by timesheets, receipts or subcontractor invoices.
• Set a budget cap or target cost so the client has a cost ceiling even if the contract is technically open-ended.
• Include audit rights allowing the client to verify cost records within a defined period after each billing cycle.
• Review total spend at agreed milestones and consider converting to a fixed price once the scope becomes sufficiently defined.