Cost-Reimbursement Contracts

Cost-reimbursement contracts provide for the final price to be determined either when the work is finished or at some interim point during contract performance. If a contract is cost-reimbursable, the contractor can legally stop work when all contract funds are spent. Thus, the cost risk is essentially shifted to the government. There are various types of cost-reimbursement contracts:

• Cost: Reimbursement consists of allowable cost; there is no fee provision. (See FAR 16.302)
• Cost-sharing: An agreed portion of allowable cost is reimbursed. (See FAR 16.303)
• Cost-plus-fixed-fee: Reimbursement is based on allowable cost plus a fixed fee. (See FAR 16.306)
• Cost-plus-incentive-fee: Reimbursement consists of allowable cost incurred and a fee adjusted by a formula based on the relationship of the allowable cost to the target cost.(See FAR 16.304)
• Cost-plus-award fee: Reimbursement consists of allowable cost incurred and a two-part fee (a fixed amount and an award amount based on an evaluation of the quality of contract performance). (See FAR 16.305)