Cost Reimbursement Contract

Also known as a cost plus contract, cost reimbursement contracts are used by governments, private individuals and businesses that are embarking on building or construction projects, on research projects or on other endeavors where a certain amount of materials will need to be purchased. A family of pricing arrangements or contract types that provide for payment of allowable, allocable, and reasonable costs incurred in the performance of a contract, to the extent that such costs are prescribed or permitted by the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed without the approval of the buyer. Types of cost-reimbursement contracts include: (a) cost without fee, (b) cost-sharing, (c) cost-plus-incentive fee, (d) cost-plus ward fee, and (e) cost-plus fixed fee.