The contractor reviews the plans and specifications and then tells the owner the amount for which they will perform the work. Cost-plus contacts and time and material contracts are very similar in that the contractor is accounting to the owner for the actual costs incurred on the job, but they are different, so make sure you understand which basis your contractor is working on before you sign a contract. Therefore, if the cost of the project increases, so does the amount the contractor is paid for overhead and profit. In a cost-plus contact, the contractor basically tells the owner that he will charge a flat fee in addition to the cost of the project, so that if the project cost increases, the fee remains the same. The cost concept is the same for a cost-plus or a time and material contract.
Materials costs are the amount paid for the items incorporated into the work of improvement.
If this is not specified in the contract, the owner is going to want the lower price and will most likely be entitled to it. Subcontractor charges are probably the least subject to dispute, since the contractor will simply pass through the actual amount paid. The issue with equipment or tool purchase is whether the contractor on future projects can use the items being charged to the project. If the answer is no, then clearly the item should be charged to the project. If, however, the contractor on future projects can use the item, the question becomes how much should be allocated to this particular project.