An agreement that allows payment for actual costs plus a fixed fee is known as

• A. Cost plus contract.
• B. Fixed-price contract.
• C. Time and materials contract.
• D. Unit price contract.

Answer: (A)

A cost-plus contract pays for the actual costs incurred in performing the work plus a predetermined fixed fee as profit. This setup reimburses the contractor for allowable expenses—such as labor, materials, overhead—and adds a separate, fixed amount to compensate for the contractor’s efforts and overhead, independent of the final cost.

This differs from a fixed-price contract, where a single price is set upfront and paid regardless of actual costs. It also differs from a time and materials contract, which is based on recorded labor hours at set rates plus the cost of materials, rather than reimbursement of all actual costs plus a fixed fee. A unit price contract bases payment on a price per unit of work completed, not on total actual costs plus a fixed fee.

So the description fits the cost-plus contract, since it explicitly involves paying actual costs plus a fixed fee.