Many government contracts are fixed price, meaning the price quoted in the proposal is final and includes all expenses. In some cases, however, it's difficult, if not impossible, to predict exactly how much certain items or services will cost over the life of the government contract. In these situations, the government agency will usually agree to a cost-reimbursement contract, in which the agency assumes some level of risk for the final costs.
This free guide will help you understand the distinct challenges and opportunities of each government contract type.
A cost-reimbursement contract is a type of government contract where the government will pay the contractor for the costs of completing the project along with an additional payment depending on what specific contract type is agreed upon.
Whereas a fixed-price contract has the project's final price agreed upon before work begins, in a cost-reimbursement contract, the final price will get determined when the contractor completes the contract. It could also be determined at some other previously established date in the contracting period.
A total cost estimate for the contract will be determined before work commences, which allows the agency to set a budget for the project and establish a maximum amount for reimbursement. The prime contractor cannot exceed that maximum without the contracting officer's permission but can stop work if the project costs reach that maximum.
There are several types of cost-reimbursement contracts, which you can read about in further detail below: