– Installment 2 – Cost Reimbursable
In our previous installment we briefly touched on all the different contract types the Federal government uses in their procurements. We also dove in just under the surface of took a deeper look at fixed price contracts. It cannot be overstated just how much there is to know in this one topic of Federal contracting. These entries will give a great place to start seeking greater understanding based on the contract type that matters most to you at any given time.
In this installment of the contract types series of blog posts, we will examine cost reimbursable contracts. These can be quite lucrative for contractors if properly understood. Generally speaking, cost reimbursable contracts place the vast majority, if not all, of the risk on the government. This great! Perform under a government contract and take no risk…what’s not to love?! A lot if you’re not careful.
Cost contracts are great from a risk perspective, but as a contractor you are opening your company up to the government for all sorts of audits and reviews. Let’s face it, the government must protect its limited budget and ensure they are minding the contracts they award. Because of this, they will expect a much deeper partnership in the exchange for goods and services than they do in a fixed price scenario.
What exactly is a cost reimbursement contract? FAR 16.301-1 describes cost-reimbursement type contracts as a vehicle that provides payment to the contractor for allowable costs incurred during the performance of a contract, provided the costs are allowable, allocable and reasonable. As with fixed price contracts, there are several sub-types of cost-reimbursement contracts. The following are those types discussed in the FAR:
· Cost
· Cost-sharing
· Cost-plus-incentive-fee
· Cost-plus-award-fee
· Cost-plus-fixed-fee
· Cost-plus-percentage-of-cost
Cost-reimbursement contracts
With the exception of cost-plus-percentage-of-cost, each of these contract types can be found in government requirements. Understanding of each is important, but when a company is looking to enter into agreement with the Federal government with any of these cost contracts, careful consideration must be given to the implications of partnering up with government customers.
