Cost-plus Models

Cost-plus models have been used for years as a way of tracking or capping FM contract costs...

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Cost-plus Models

Cost-plus models have been used for years as a way of tracking or capping FM contract costs, but their inherent flaws do not promote good behaviours on both the contractor and client side.

Clients are interested in squeezing the management fee on a contract as much as possible, while not focusing on the fact that the contractor fee may only make up circa 8% of the total invoice value. While the client squeezes the contractor’s margin, the contractor looks for ways to mitigate their costs to preserve or enhance their own level of profitability.

Cost-plus contracts which have been poorly negotiated, without mutual consideration of how either side will benefit, leads to conflict and poor outcomes. In this article, the Green Block Consulting Group examine the current role of cost-plus models in client engagement with cleaning contractors.

Cost plus model types:
How is cost defined?

Costs are everything that are specified in the supply agreement between the client and the FM contractor. In most cases, this includes the salaries plus on-costs of employment, materials & equipment, training and back of house (account management costs) incurred in the supply of the service, plus an overhead and profit.

CPPC – cost plus percentage of cost

The client pays the FM contractor the value of the invoice presented for the delivery of the service plus an agreed percentage on top of
those costs. With this model, the higher the contractors’ costs, the more contributions the contractors will make.

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