Cost reimbursement

Cost reimbursement
See also
Firm fixed price contract Lump-sum contract Bid documents Supplemental agreement Sole distributor Bonding company Service lease Agency Broker Standing offer

A cost reimbursement (CR) is a type of contract where the seller does not receive any fee and is only reimbursed for an agreed part of his eligible costs.

Cost reimbursement contracts provide the payment of eligible costs incurred to the extent provided for in the agreement. In the case of cost reimbursement contracts, most of the financial risk of the plan rests with the buyer, who is required to pay more than the budget if labour, material or other costs incurred are higher than expected at the time of signing the agreement. According to the Federal Acquisition Regulation this type of contract should be used when the uncertainties surrounding the performance of the contract do not permit an estimate of costs to be made with sufficient accuracy to apply any type of fixed price contract.

That contract should not be used by state and local government contracting agencies unless they are they are prepared to employ significantly more employers during the negotiation and administration of contracts to a greater extent than is normally required for the award and management of fixed-price contracts.

Types of the cost reimbursement contract

There is a few specific types of the cost reimbursement contract. The difference between them is whether the contractor wants to recover only costs or if there is some allowance for profit. Some of them may be also nonprofits contracts.

The contracts may be:

• Cost contracts
• Cost-sharing contracts
• Cost plus fixed fee contracts
• Cost plus a percentage of cost contracts

Advantages of using the cost reimbursement contract

There is a lot of advantages of using the cost reimbursement contract and the most important are as following:

1. This is the most convenient contract of any others
2. The contractor may be selected to enter into a contract and start work before the end of the programme and without any estimates or quantities needed for the preparation
3. Contractor management methods in theory can in any case be used to bring benefits to the client
4. The client may be sure that the contractor will not achieve an excessive profit

References

• Curry S.W (2016), Contracting for Services in State and Local Government Agencies , Routledge, New York
• Garret A.G (2008), Cost Estimating and Contract Pricing: Tools, Techniques and Best Practices , CCH Incorporated, Riverwoods
• Kirkham R (2014), Ferry and Brandon's Cost Planning of Buildings , John Wiley & Sons, Oxford
• Manuel M.K (2011), Contract Types: An Overview of the Legal Requirements and Issues , DIANE Publishing, Darby
• Sullivan M (2010), Joint Strike Fighter: Strong Risk Management Essential as Program Enters Most Challenging Phase: Congressional Testimony , DIANE Publishing, Darby

Author: Veniamin Terokhin