Cost Plus Fee

This is part of the Cost Reimbursable Contract Type which is one of the tools and techniques of the Plan Purchases and Acquisitions.

As per Cost Reimbursable contract, all the allowable costs to produce the products or services (deliverable) of the project is charged to the buyer of the contract. As a nature of this contract buyer carries the bigger risk as the total cost is uncertain.

The Cost Plus Fee (CPF) is also known as Cost Plus Percentage Of Cost (CPPC).  In this contract, the seller is reimbursed all the allowable cost plus a fee usually some agreed upon percentage of the cost. Both Fee and Cost are variable in this contract.

Pros
1. Buyer can make scope change

Cons
1. Total costs are unknown to buyer
2. Seller will not motivated if the costs are low
3. Seller will not motivated to control the cost of the project as this will lower their fee

-Posted by Dhana