Running a cost-plus job: proving every cost

How a contractor runs a cost-plus contract so every cost it claims is backed by evidence and the fee is worked out on the right base.

By Achekam · 11 October 2026 · 5 min read · For Construction businesses in South Africa, Nigeria, Kenya

A cost-plus contract sounds like the safest job a contractor can take. The client pays whatever the work costs, plus a fee on top. No more pricing risk, no more losing money on a rate that turned out too low. Contractors who have run one know the catch: the client pays whatever the contractor can prove the work cost. Every cost without a document behind it is a cost the contractor carries alone, and every one that is questioned delays the next payment.

This article explains how cost-plus contracts work, how the fee structure affects what you need to track, and how to run purchasing on the job so that every claim arrives with its evidence already attached.

What a cost-plus contract is

Investopedia defines a cost-plus, or cost-reimbursement, contract as one in which the project owner reimburses the contractor's expenses plus an additional profit, usually stated as a percentage of the contract price. That is the opposite of a fixed-price contract, which is agreed up front regardless of what the work actually costs.

Investopedia notes that cost-plus contracts are generally used when the party drawing up the contract has budgetary restrictions or when the scope cannot be properly estimated in advance. Refurbishments where nobody knows what is behind the plaster, emergency works after storm damage, and early works on a site still being designed are typical examples in construction.

Investopedia's explanation of cost-plus contracts covers the main types, their benefits and their drawbacks.

Four fee structures, and how each moves with your costs

Investopedia describes four kinds of cost-plus contract:

Cost-plus fixed fee. The fee is a set amount, whatever the costs come to.
Cost-plus percent-of-cost. The fee is a percentage of the costs, so reimbursement rises as costs rise.
Cost-plus incentive fee. The fee changes depending on performance against targets, often cost or time.
Cost-plus award fee. An additional fee is awarded based on the client's assessment of performance.

The structure decides how carefully the client will scrutinise your costs. Under percent-of-cost, every extra rand, naira or shilling of cost also raises your fee, so the client has every reason to challenge items it thinks are inflated. Under a fixed fee, the dispute is more likely to be about whether a cost belongs to the job at all.

Investopedia lists the drawbacks as an uncertain final cost, typically a higher total cost, disputes over recovering expenses, and the work of justifying all costs. That last one is the contractor's day-to-day reality.

Costs backed by invoices and receipts

Investopedia states that all direct and indirect costs claimed under a cost-plus contract must be supported by invoices and receipts. In practice, the contract itself usually spells out which costs are reimbursable, which overheads may be charged, and what evidence the client wants for each. Read those clauses before the first purchase, not when the first claim is rejected.

A cost that is easy to claim has a clear trail:

A request saying what was needed, for which part of the work, and why.
An approved order to a supplier.
A record that the goods or services were received on site.
A supplier invoice matching the order and the delivery.
Proof of payment.

What the client will not reimburse

Investopedia notes that cost-plus contracts normally do not cover contractor error or negligence, and that some contracts cap the amount reimbursed. Rework caused by poor workmanship, materials damaged through careless storage, and plant standing idle because of the contractor's own poor planning are the usual examples.

Keep those costs out of the claim from the start. Record rework and contractor-caused losses separately, so the claim contains only what the client should pay, and so you know what the errors cost you.

If the contract has a cap, track cumulative claimed costs against it every month. Approaching the cap without warning the client is a negotiating position you do not want.

Requisitions, matched invoices and bills in Achekam

In Achekam, the way to keep a cost-plus contract's costs identifiable is to carry the contract's name through every purchasing record and give it its own accounts.

Requisitions. Staff raise a purchase requisition saying what is needed, why and the estimated cost, and someone other than the requester approves or declines it. Name the cost-plus contract and the part of the work in the reason, every time.
Matched invoices. A supplier invoice recorded against an order is matched with what was ordered and what arrived. If the price or quantity differs, it is held until someone writes a resolution note, so a short delivery or a price creep is caught before it reaches the client's claim.
Bills. Supplier bills are recorded line by line with VAT. A bill without a purchase order waits for approval before it posts, and bills can be paid in full or in parts from a chosen bank account.
Separate accounts. Each business has its own ledger with a standard chart of accounts, and accounts can be added. For a large cost-plus contract, adding cost accounts that belong only to that contract keeps its costs apart in the ledger.

Assembling the cost pack for each claim

Document Centre is a folder-based store where a business uploads files or whole folders, previews, downloads, renames, moves, tags and searches them, and a new version keeps the earlier ones. Give each cost-plus contract a folder, with a subfolder for each claim period.

For each claim, the pack contains:

a summary schedule of costs by category, agreeing to the ledger;
every supplier invoice and proof of payment;
labour records for the period;
plant hire invoices or internal plant records;
the fee calculation, on the base the contract specifies;
a note of any costs excluded as contractor error.

For more on raising orders that stand up to scrutiny, see materials requisitions and purchase orders, and for proving what arrived on site, read site deliveries received.

A cost-plus job rewards the contractor whose paperwork is finished before the client asks for it. The fee follows the evidence.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.