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| What Type of Contract Do You Require - Cost Plus |
This is the contract that was commonly used until recently but has been overtaken by ‘Guaranteed Performance’ or ‘Fixed Price’ as the preferred choice from businesses and organizations. In ‘Cost plus’ the Client pays for all costs, including food, staffing, overheads and management fee. The Contractor pays back to the Client the gross profit on sales within the catering Profit and Loss Account. Most contractors prefer this type of contract as it does provide an opportunity for discount retention and maximising of profit. This type of contract requires more monitoring than the other two types as food costs and overheads can be inflated by discount retention. However, if you choose this type of contract we have included the requirement for the Contractor to achieve budgeted sales and to remain in budget.
The main characteristics of Cost Plus are:
a. Traditional Contract
b. Little Risk to Contractor
c. Involves Discounts
d. Requires monitoring on costs to limit the level of discount retention
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