Utah Contractor Practice Exam

What defines a cost plus contract?

1. Fixed payment for services only

2. A set amount that includes overhead and profit

3. Payment for labor and materials plus contractor profit

4. Payment based on estimated labor costs

The correct answer is: Payment for labor and materials plus contractor profit

A cost plus contract is primarily defined by the payment structure where the contractor receives reimbursement for all legitimate project costs incurred during the execution of the contract. This includes the costs of labor and materials, along with an additional fee or percentage that represents the contractor's profit. This arrangement allows for flexibility, as variable costs are covered while still ensuring the contractor makes a profit based on the total costs of the project. This type of contract is particularly useful in projects where the scope of work cannot be precisely defined at the outset, enabling adjustments for unforeseen costs without penalizing the contractor. The contractor and owner agree on what constitutes allowable costs and the method for calculating profit, which is clearly articulated within the contract to ensure transparency and accountability. Other payment structures, such as a fixed payment for services, a set amount that includes overhead and profit, or payment based solely on estimated labor costs, do not encapsulate the essence of a cost plus contract. Rather, they emphasize different approaches to managing project costs and contractor remuneration that do not account for actual expenses incurred in the same flexible manner.