What are reimbursable expenses in construction?
Reimbursable expenses are costs the contract allows the contractor (or designer) to bill to the owner and be paid back, separate from or in addition to the fee. What counts depends entirely on the contract's definitions. On cost-plus and GMP jobs they are the cost of the work, while the fee covers overhead and profit.
Reimbursable expenses are costs the owner agrees to pay back at cost, sometimes with a markup. On a cost-plus contract or a GMP contract, the contract lists which costs are reimbursable (the "cost of the work") and which are covered by the contractor's fee. On a lump-sum job or a design contract, reimbursables are usually a short list of extras such as permit fees, printing, or travel, billed on top of the fixed price.
The phrase only means something when the contract defines it. Two contracts can treat the same expense, like a project manager's salary, in opposite ways.
Standard cost-plus forms usually define the cost of the work at length, and many owners edit those definitions in their own riders. Whatever form you use, read the reimbursable definitions with your bookkeeper before signing, because she is the one who will have to defend each line in the monthly billing.
What is often reimbursable, and what is not
| Cost | Often reimbursable? | Notes |
|---|---|---|
| Field labor and burden | Yes | At actual wages plus payroll burden, with timesheets |
| Materials and equipment rental | Yes | Net of discounts and rebates in many contracts |
| Subcontracts | Yes | Per signed subcontracts and approved changes |
| Site staff (superintendent, field PM) | Often | Depends on how general conditions are defined |
| Permit and inspection fees | Often | Sometimes paid directly by the owner |
| Home office staff and overhead | Usually not | Normally covered by the fee |
| Costs from the contractor's own negligence | Usually not | Commonly excluded |
How it works on a real job
Say a builder has a cost-plus 12 percent contract for a $1.1 million custom home. In month four the builder's pay request shows $96,000 of costs: framing labor, lumber, the HVAC sub's first draw, a dumpster rental, and a $600 charge for the company's estimator who spent a day on a revised kitchen price.
The homeowner's lender reviews the backup. Everything is supported by invoices and timesheets, except the estimator's time. The contract lists office staff as covered by the fee, so that $600 comes off. The builder bills $95,400 of reimbursable cost plus 12 percent ($11,448), for $106,848. Small, but on a cost-plus job those small rejections add up and erode trust, so the builder fixes its cost codes to keep office time off the job.
Common mistakes and disputes
- Vague definitions. "Reasonable costs" invites a fight. List categories in the contract.
- Billing without backup. Owners and lenders will hold payment for missing receipts.
- Double counting. A cost billed in general conditions and again as a reimbursable gets caught in audits.
- Keeping rebates or discounts the contract says belong to the owner.
- Marking up reimbursables when the contract says they are passed through at cost.
Related terms
See open book pricing, cost-plus fixed fee, general conditions, and time and materials. The guide cost-plus vs fixed-price contracts covers when this structure fits.
Frequently asked questions
Are reimbursable expenses marked up?
It depends on the contract. On cost-plus work, the fee is typically applied to reimbursable costs. Some contracts pass certain items, like permit fees, through at cost with no markup.
What is the difference between reimbursable expenses and the fee?
Reimbursable expenses pay back the actual costs of doing the work. The fee is the contractor's compensation for overhead and profit, and is not tied to receipts.
Do architects charge reimbursable expenses?
Often. Design contracts commonly list reimbursables such as printing, travel, and permit fees billed in addition to the design fee.
What backup should I send with reimbursable costs?
Invoices, receipts, timesheets with labor rates, and sub pay applications. Organize them by cost code so the owner can check them quickly.
