What is a significant disadvantage of using a Cost Plus contract?

A significant disadvantage of using a Cost Plus contract is that there is often no incentive for the contractor to minimize costs. In this type of contract, the contractor is reimbursed for all incurred costs plus a predetermined fee or percentage on top of those costs. As a result, contractors may not actively seek to reduce expenses since higher costs lead to higher fees. This lack of financial incentive can lead to increased project costs, as the contractor might prioritize maximizing their reimbursable costs rather than focusing on efficiency or cost savings.

In contrast, other options do reflect some challenges associated with Cost Plus contracts, such as the necessity for detailed advance pricing or project management expertise. However, these factors can be managed or mitigated through contractual agreements and effective management strategies. On the other hand, the fundamental structure of a Cost Plus contract itself inherently lacks encouragement for cost savings, making it a critical disadvantage for clients looking to maintain budget control during a project.