A cost plus incentive construction contract is one in which the contractor is given incentive based on the total target costs of construction. In this contract the contractor who is given the construction project is assigned a target cost for the entire project. When the allowable costs are lesser than the target costs the contractor gets paid a cost plus reimbursement and when the allowable costs are more than the target costs the contractor gets a lower incentive than agreed.
The contract provides a buffer for the absorption of increasing cost of construction for the owner and also provides incentive to the contractor for managing the costs of the project efficiently. The contract includes details such as cost of construction, target cots, tentative date for completion, technical details of construction project, limitations if any of the construction project, basic minimum fee that contractor is entitled to, penalty for delay, incentive for better cost management etc.
[Also Read: Construction Contract]
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