costreimbursable

Cost-reimbursable contracts are a form of procurement contract under which the buyer agrees to reimburse the seller for all allowable and allocable costs incurred in performing the contract, plus an additional fee or profit. Costs are typically divided into direct costs (labor, materials) and indirect costs (overhead, allowances). The seller's fee may be a fixed sum, a percentage of costs, or an incentive-based amount tied to performance metrics.

These contracts are used when the work scope is uncertain, technical risk is high, or conditions require flexibility, such as research and development, government programs, or complex construction. They shift cost risk to the buyer but reduce risk for the seller.

Accounting and oversight: Reimbursable costs must be allowable, reasonable, and allocable under contract terms and applicable cost principles. The contractor must maintain an adequate cost accounting system (in many jurisdictions CAS/GAAP). Billing occurs as costs are incurred or milestones are earned, often subject to audit and approval by the buyer or a contracting officer. In some cases, a not-to-exceed limit or other controls is imposed.

Variants include cost-plus fixed-fee, cost-plus incentive fee, and cost-plus award-fee, which differ in how the fee is structured and rewarded for performance.

Advantages and disadvantages: For buyers, favorable risk transfer but potential for less price certainty and higher administration. For sellers, easier reimbursement and potential for profit, albeit contingent on performance and cost control.

Examples: U.S. federal procurement of R&D, defense, large IT projects, academic or government-funded consortia.