Cost reimbursable is a type of contract in which the buyer agrees to pay back the seller for all acceptable costs spent in the performance of the contract. In other words, it’s up to the seller to do the work, and it’s up to the buyer to pay the seller’s costs and any extra fees or profit that the contract calls for.
Cost-reimbursable contracts come in different forms, such as:
Cost Plus set Fee (CPFF): In this type of contract, the seller is paid for all acceptable costs plus an agreed-upon set fee.
Cost Plus Incentive Fee (CPIF): In this type of contract, the seller is paid back for all acceptable costs plus a fee that is based on how well the seller meets certain goals or rewards that were set up front.
Cost Plus Award Fee (CPAF): In this type of contract, the seller gets paid for all acceptable costs plus a fee based on how well the seller did, as judged by the buyer.
Time and Materials (T&M): In this type of contract, the seller gets paid back for all acceptable costs, plus a fee for the time and materials they used to complete the job.
Cost-reimbursable contracts are often used when the project’s scope or needs are not clear, or when the customer wants more control over the project’s progress and results. They are also often used in government contracting, where rules and standards can be hard to understand and predict ahead of time. Cost-reimbursable contracts can be dangerous for the buyer, though, because the total cost of the job can be hard to predict and could end up being more than the budget allows.
