The fixed-fee plus profit-sharing formula provides a reward to the contractor who
controls costs, keeping them at a minimum. In this formula it is common to specify a target
price for the total contract. If the contractor brings the job in under the target, the savings
are divided or shared between owner and contractor. A common sharing formula provides
that the contractor shares by getting 25% of this underrun of the target. If, for instance, the
target is $15 million and the contractor completes the job for $14.5 million, a bonus of
$125,000 is received. The projection of this underrun of the target and the percent bonus to
be awarded the contractor are used by some construction firms as a measure of the job’s
profitability. If the contractor exceeds the target, there is no profit to be shared.