A contract where the client pays to the contractor all of his costs plus an agreed fee or amount of profit. The costs that are reimbursed are defined in the contract and should be directly related to implementation of the project: materials and equipment, labor, subcontractors, government fees, etc. The fee above the costs paid to the contractor may be a fixed fee, an incentive fee or an award fee. The incentive fee could be a percentage of savings against budget achieved. The incentive or award fee could be for meeting or being quicker than the project schedule, for being on budget or below budget, for safety in implementing the project, etc.
A Cost Plus contract may be cheaper than a Fixed Price or Design and Build contract because the contractor assumes much less risk regarding his costs. It may also generate higher quality by avoiding incentives for the contractor to use lower quality materials. Implementation requires more oversight by the client and does not provide certainty of the final cost.