It is a method of charging a customer for all or part of a project, usually but not necessarily restricted to a job that have been quoted and extra work is required, but for some reason a fixed price is not able to be determined. An example is, rock excavation or a fixture, which is not readily available.

When the words cost plus are used it means the firm contracted to carry out the job will charge the net invoice value for any materials, plant hire and equipment used to which they are entitled to add an agreed percentage mark up for overheads and profit. The same applies for the labour component where the actual hours worked by each person are declared and claimed at the predetermined charge out rate.

One should be careful to claim the business overheads correctly, in all my estimating seminars I suggest it is easier to spread the overheads equally over materials and labour, in the case of cost plus I recommend your overheads be absorbed in the labour charges.

In the event of a dispute on Cost Plus contracts the customer has the right to ask to see the make up of the charges, after all, the agreement is what it costs plus a percentage profit. The profit and the labour charge should be determined before work commences.

One could be forgiven for thinking this sounds like Do and Charge work, but there is a difference. Do and charge is usually associated with emergency work where a customer requires work to be carried out on short notice and the tradesperson completes the work on the first visit. The extent of work may not be known; such is the case for a broken water service or a blocked drain.