How is the "cost-plus" contracting method defined?

The "cost-plus" contracting method is characterized by a pricing structure where contractors receive reimbursement for all allowable expenses incurred during a project, in addition to a specified fee or percentage of those costs as payment for their services. This arrangement ensures that the contractor is compensated for the actual costs required to complete the work, such as labor, materials, and other direct expenses. By including a fee or percentage on top of these costs, the contractor is incentivized to manage costs efficiently while still earning a profit margin.

This method is often used in projects where the scope of work may not be clearly defined at the outset, allowing for flexibility and adjustments as the project progresses. It is especially common in construction projects where unforeseen circumstances can impact costs. This approach can be beneficial to both the owner and the contractor, as it provides transparency in costs and encourages collaboration.

In contrast to this, the other options present different contracting concepts that do not align with the cost-plus structure. For instance, paying contractors upfront does not incorporate the actual costs incurred. Competitive bidding is focused on fixed pricing based on competitors' bids rather than reimbursement for costs. Eliminating overhead costs contradicts the fundamental principles of a cost-plus contract, where such costs would typically be included in the reimbursement.