What are a contractor’s responsibilities in a cost-plus contract if costs exceed estimates in the USA?

Question from SPP, What are a contractor’s responsibilities in a cost-plus contract if costs exceed estimates in the USA?

Answer from AI:

In a cost-plus contract, the contractor is paid for all of their allowed expenses to a set limit plus additional payment to allow for a profit. If the costs exceed the estimated amount, the contractor’s responsibilities and the required documentation to prove actual costs incurred can vary based on the specific terms of the contract. However, there are some general principles that typically apply.

Contractor’s Responsibilities

In a cost-plus contract, if the costs exceed the estimated amount, the contractor is generally responsible for:

• Notifying the client: The contractor should inform the client as soon as they realize that the costs are likely to exceed the estimate. This allows the client to make informed decisions about how to proceed.
• Justifying the additional costs: The contractor may need to explain why the costs have exceeded the estimate. This could be due to unforeseen complications, changes in the scope of work, or increases in material or labor costs.
• Seeking approval for additional costs: Depending on the terms of the contract, the contractor may need to get approval from the client before incurring additional costs.

Required Documentation

To prove the actual costs incurred, the contractor will typically need to provide:

• Invoices: These should detail the goods or services purchased, the date of purchase, and the amount paid.
• Receipts: These provide proof of payment and should be kept for all expenses.
• Time sheets: If the contract includes payment for labor, the contractor will need to provide records of the time spent on the project.

Legal Advice

The specifics of a cost-plus contract can vary, and the contractor’s responsibilities and the required documentation can depend on the exact terms of the contract. Therefore, it’s recommended that individuals consult with a legal professional for personalized advice.

For more information on cost-plus contracts, you can refer to the Federal Acquisition Regulation (FAR) Part 16.3, which provides guidelines on cost-reimbursement contracts in the federal government.

Remember, this information is intended to provide a general understanding of the law. It’s not intended to provide specific legal advice. Always consult with a legal professional for personalized advice.