Ok, this got me thinking. I dont have any real experience of the costing side of contracts so its purely out of interest so no one need feel under pressure to respond.

Is this the essence of it?

Overheads. - The predictable resource costs of fulfilling a contact, eg, human, material, R&D. They come off the bottom line......i.e., the profit the contractor makes on the contract, unless they are specified in advance and paid for separately by the customer. (For example, a customer as a matter of company policy, may insist on certain environmental factors or employment practices being taken into account which incur additional cost, and is therefore prepared to pay for those costs specifically).

On costs. - The unpredictable and unexpected additional costs that can occur with projects. For example. The need to do re-design work due to changes in needs of the customer or mistakes in the development of the project by the contractor. Changes due to "act of god" or unexpected legislation. Sudden unavailability of essential materials or unexpected skills shortages. Who pays for these on costs is where the small print in contracts comes in. Sometimes the reason and the responsibility is clear. If the customer changes what they want then they should pay, unless they already allowed for those costs because they anticipated the need for changes in the original contract. Likewise, a contractor should pay if they get the job wrong and have to put it right. The arguments start when it is due to factors over which neither party thinks it is reasonable to expect them to have control over.

If everyone has done their job well over the original contract then this is the area where Contractors can find themselves loosing money on contracts they should be making a profit on, and where Customers can suddenly find their cost spiraling out of control.

Not much detail here I know but I would be interested to know if I have the basic principals right.

Thanks