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   Types of Cost Reimbursement Contracts


There are two basic types of contracts when it comes to the exchange of goods and services: fixed contracts and cost reimbursement contracts. This article will discuss the various types of cost reimbursement contracts and their benefits.

Cost Reimbursement Contract: This is the basic contract that pays for all of the contractor's costs (often only to a certain limit). It shifts almost all of the risk of the project from the contractor to the buyer, since the buyer is essentially paying for the contractor's best attempt. This type of contract should be used when specifics cannot be determined, such as in research, investigations, and experiments where the outcome is uncertain and total cost is hard to estimate.

Cost Sharing: With this contract, the buyer and the seller mutually agree to split the cost of the project or service, with no fixed fee or award. Percentage of payment is determined before the service begins.

Cost Plus: All cost reimbursement contracts pay the contractor the cost of materials, equipment, and manpower. However, some of them have an additional "plus" bonus. This includes Cost Plus Incentive, where the buyer may promise certain bonuses for results or efficiency; Cost Plus Award, where the buyer examines the finished product and determines if the contractor deserves extra; and Cost Plus Fee, where the buyer agrees in advance to pay a fee at the end of the service for the contractor's completed work.

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