What does a "cost-plus" contract entail?

A "cost-plus" contract is a type of agreement where the contractor is reimbursed for all legitimate project costs incurred, along with an additional amount that represents their profit, often referred to as a profit fee. This structure allows for flexibility in managing project expenses since the contractor can cover costs as they arise without the risk of being underbid or overbudget.

These contracts are particularly beneficial in complex projects where it's difficult to estimate costs accurately in advance. By using a cost-plus arrangement, clients can ensure that the contractor is fully compensated for all incurred expenses, while also providing an incentive for efficient use of resources. The profit component encourages quality work and timely completion without the contractor feeling pressured to cut corners in order to stay within a fixed budget.

In contrast, the other options do not accurately capture the essence of a cost-plus contract, focusing instead on different types of contractual arrangements or payment structures.