Which contract type involves the contractor being paid for direct costs plus a fee?

The contract type that involves the contractor being reimbursed for direct costs incurred plus a fee is the cost-plus contract. This structure allows the contractor to receive compensation for the actual costs of labor and materials, ensuring they are not at a financial risk for unexpected expenses. The fee is typically a set percentage of the costs, providing an incentive for the contractor to manage expenses effectively while also guaranteeing a profit margin.

In contrast, fixed-price contracts provide a set amount to the contractor regardless of the actual costs incurred, which can lead to different risk profiles for both parties involved. Time and materials contracts, while they also cover costs, include a specific hourly rate for labor, making them distinct from cost-plus contracts because they do not simply reimburse direct costs in the same way. Subcontract agreements are typically arrangements between a general contractor and a subcontractor, focused on specific portions of a project rather than the payment structure outlined in a cost-plus contract.