Cost-Reimbursable Contract Definition

A cost-reimbursable contract is a type of agreement between two parties in which the funder agrees to reimburse the provider for all allowable costs incurred in delivering a specified product or service. This type of arrangement is often used in situations where the exact cost of delivering the product or service is difficult to estimate in advance.

Under a cost-reimbursable contract, the provider may be reimbursed for actual costs incurred, plus an agreed-upon fee. The fee may be a fixed amount or a percentage of total costs. In some cases, the provider may also be reimbursed for overhead expenses such as rent and utilities.

The key advantage of a cost-reimbursable contract is that it provides financial protection for the provider in case the project ends up being more expensive than anticipated. It also gives the provider an incentive to control costs and keep them as low as possible.

A disadvantage of this type of contract is that it can lead to increased costs for the funder if the project ends up being more expensive than expected. There is also potential for abuse, as providers may try to inflate their actual costs in order to receive a higher reimbursement.