Court to Contractor: Administration Costs Not Compensable under Oral Cost-Plus Contract

Those who dare to contract on an oral, cost-plus basis are subject to the rules made by the court to determine exactly what costs are included -- and excluded -- from the definition of reimbursable cost. And in Washington, despite the unfortunate frequency with which owners and contractors resort to this informal process, there is precious little law on the issue.

In Keever & Associates v. Randall, 129 Wn. App. 733 (2005). Division III recently held that a GC's administrative time is not separately chargeable to the owner as a matter of law under a cost-plus arrangement. Instead, such administration time is subsumed by the "plus" portion of the cost-plus formula.

Taken to the extreme, this holding could mean bad things for GCs under the oral cost-plus regime. For example, it could mean the GC may not separately charge for its superintendent or project manager time. A literal reading of "cost" for this purpose might, the Court seems to suggest, be limited to the expenses paid to third parties such as subcontractors or vendor.