Cost reimbursement is another alternative contract in which the contractor is reimbursed for the actual cost and fixed costs which incurred for the work .Cost-reimbursable contracts might be used for the projects in which the general scope and nature of the work are defined, but there is uncertainty in quantities or execution. This type of contract is risky for client because under cost-reimbursable contracts, all uncertainties in the scope of project are incurred by the client and the final costs of the project are unclear. Cost-reimbursable alternative contracts offer significant flexibility for responding to conditions that are uncertain. All reimbursable costs must be clearly stated in the contract. Cost reimbursable contract is a complex procedure and requires very careful consideration. This is because determining the direct costs are relatively straightforward, but determining the shared costs may encounter potential levels of difficulty. Direct costs can be defined as the expenses incurred for a particular construction projects, which can be included:
• Sub-contractors fees and labour wage.
• Equipments and plans
Overhead costs are those costs which spread across the other projects and include:
• Head office costs.
• Staff costs.
• Manufacturing facilities.
• Owned plant.
These costs might be calculated on a pro-rata basis and charged, along with profits as a pre-agreed lump sum, or percentage fee.
Costs incurred by the contractor for the project are…