Does cost-plus contract AR advance differently than fixed-price contract AR at term sheet?
Last updated: August 27, 2026
What is a fixed-price contract?
A fixed-price contract establishes a total price for completing a defined scope of work. The contractor agrees to deliver the project for a specified dollar amount, regardless of actual costs incurred. Fixed-price contractors typically bill monthly based on percentage of completion (progress billings). These progress billings are often excluded from ABL borrowing bases because collection depends on project completion rather than completed deliverables.
What is a cost-plus contract?
A cost-plus contract (also called cost-reimbursement or time-and-materials) reimburses the contractor for actual costs incurred plus a markup (fee or margin). The contractor invoices for labor, materials, and other costs as they are incurred, plus the agreed fee percentage or fixed fee. If these invoices represent work in process on a long-term project rather than completed deliverables, they may also be treated as progress billings and excluded from the borrowing base.
| Contract type | Billing method | ABL treatment |
|---|---|---|
| Fixed-price | Progress billings (% completion) | Often excluded; collection depends on project completion |
| Cost-plus | Invoice actual costs + markup as incurred | May be excluded if representing work in process; eligible if representing completed deliverables with enforceable payment obligation |
| Completed deliverables (any contract type) | Invoice for completed goods or services | Typically eligible (70%–85% advance; OCC: "70 percent to 85 percent of eligible accounts receivable") |
What determines AR eligibility?
The credit agreement's Eligible Receivable definition focuses on invoice collectibility. Key factors include:
- Completed work: Has the work been completed and accepted by the customer?
- Collection timing: Is the payment timing predictable and not contingent on future project milestones?
Related topics
- Before binding an ABL revolver, which AR lines are ineligible?
- Progress billings in borrowing base before bind
- Construction AR vs manufacturing AR at bind
Frequently asked questions
Does cost-plus contract AR advance differently than fixed-price contract AR at term sheet?
AR eligibility depends on whether the invoice represents completed work or progress billings, not solely on contract type. Fixed-price contracts typically use progress billings based on percentage of completion, which are often excluded from the borrowing base. Cost-plus contracts may invoice actual costs incurred plus a markup, but if the invoices represent work in process rather than completed deliverables, they may also be excluded. The credit agreement's Eligible Receivable definition focuses on invoice collectibility and legal enforceability rather than contract pricing structure.