I gone thrgh d definitions on "construction contract' "fixed price contract" & " cost plus contract" of AS 7 CONSTRUCTION CONTRACTS but I'm not getting d actual meaning . Can anybody pls help in finding d meaning & understanding them?
Thank You
7 Replies
(Guest)
A cost-plus contract, more accurately termed a Cost Reimbursement Contract, is a contract where a contractor is paid for all of its allowed expenses to a set limit plus additional payment to allow for a profit.Cost reimbursement contracts contrast with fixed-price contract, in which the contractor is paid a negotiated amount regardless of incurred expenses.
In simple words when contract amount is fixed nad contractor does not get any extra amount.
In cost plus contract contractor gets actual amount expended plus some extra as a profit(say 5% of total expenses)
CA Shiv
(Business Controller)
(2987 Points)
Replied 07 June 2010
A construction contract is a contract specifically negotiated for the
construction of an asset or a combination of assets that are closely
interrelated or interdependent in terms of their design, technology and
function or their ultimate purpose or use.
They are special contracts which are done on the basis of the deisgn, technology etc as mentioned itself in the definition. IN layman languages it is just a contract for which cost is negotiated on basis of factors and if in furture any of the factor is changed than cost of the contracts with change accordingly. For construction of buildings etc.
isA fixed price contract a construction contract in which the contractor
agrees to a fixed contract price, or a fixed rate per unit of output, which
in some cases is subject to cost escalation clauses.
Here the contract price is fixed as mentioned above and subject to escalation clause means if there is increase in cost of input such as cost of material, than the cost of contract will increase accordingly.
isA cost plus contract a construction contract in which the contractor is
reimbursed for allowable or otherwise defined costs, plus percentage of
these costs or a fixed fee.
They are special contracts where one cost is fixed and variable. conditions for variable costs are already defined in contract. In simple if any additional cost is incrurred except the fixed cost it will be reimbursed.
sumeet jha
(CA-FINAL)
(49 Points)
Replied 07 June 2010
bascically Cost plus contract means contractor agreed to receive a certain predetermined rate of profit
over and above cost incureed .
nd fixed price contract means a price is fixed after taking consideration of all costs to be incurred for contract.generally this price are not altered or increased subject to cost esclation clausei.e for example when contract is made price of material is 10/unit nd during work in progress its increases to 25/unit means abnormal increase in price in such circumstances its fixed price may be renewed.
varun gupta
(Senior Accounts Officer)
(89 Points)
Replied 07 June 2010
In cost plus contract actual cost incurred plus certain amount is paid to contractor but in fixed price contract fixed amount is paid irrespective of its cost .
(Guest)
| AGEE WITH VARUN Originally posted by : varun gupta | ||
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In cost plus contract actual cost incurred plus certain amount is paid to contractor but in fixed price contract fixed amount is paid irrespective of its cost . |
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Kalpesh Chauhan,
(Tax Assistant (Accounting Technician CA FINAL CS PROF. PROG. B.Com))
(8311 Points)
Replied 17 June 2010
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