Certified Supply Chain Professional (CSCP) Practice Exam

What characterizes a cost-plus contract?

1. The buyer pays a fixed amount for each product

2. The buyer pays all costs plus a maximum cost with a fixed fee

3. The buyer pays only when goods are delivered

4. The buyer pays a percentage of the total cost as commission

The correct answer is: The buyer pays all costs plus a maximum cost with a fixed fee

A cost-plus contract is characterized by the fact that the buyer agrees to pay all of the actual costs incurred for the work or service provided, along with an additional amount meant to serve as profit or a fixed fee. This structure allows for more flexibility and can encourage suppliers to keep costs manageable, as they know their expenses will be covered. In this type of agreement, all legitimate costs are reimbursed to the supplier, ensuring that they are not operating at a loss due to unpredictable expenses, while the maximum cost helps protect the buyer from excessive spending. The fixed fee component adds security for the supplier as it guarantees them a profit margin on top of their costs, which can promote quality and thoroughness in their work. The other options presented do not accurately convey the nature of a cost-plus contract. A contract that merely involves a fixed amount per product does not take into account the variability of costs. Paying only upon delivery would imply a more transactional relationship without consideration of incurred expenses. Charging a percentage of the total cost as commission doesn't represent the primary mechanism of reimbursement found in a cost-plus structure, which focuses on covering all costs and providing a set profit margin.