Cost-reimbursement (cost-plus) contract
Also called: cost plus, cost-plus-fixed-fee, CPFF, cost reimbursement, cost type contract, CPAF, CPIF
A cost-reimbursement contract pays the contractor its allowable incurred costs up to an estimated ceiling plus a fee, which may be fixed, incentive-based or award-based; the government bears most cost risk and in return gets to audit the books.
The family is FAR 16.3: cost-plus-fixed-fee (16.306), cost-plus-incentive-fee (16.304) and cost-plus-award-fee (16.305). FAR 16.301-3 limits their use to work that cannot be priced with confidence and to contractors with an accounting system adequate for determining costs, which is why DCAA audits and the cost principles in FAR Part 31 matter. Commercial items cannot be bought this way.
What to check: whether your accounting system can segregate direct and indirect costs by contract and would pass an adequacy review, your provisional indirect rates and how they are finalized, the limitation of cost clause (FAR 52.232-20) that stops you working past the funded amount, and the fee structure. Most small firms meet cost-type work first as subcontractors to a prime on an R&D or engineering contract.
What it is not: a guaranteed profit. Fee is capped, unallowable costs come out of your pocket, and an inadequate accounting system can disqualify you.
See also: Firm fixed price (FFP) contract, Time-and-materials (T&M) contract, Defense Contract Audit Agency (DCAA), Wrap rate
Questions that use this term
Search allMy company mostly does janitorial and facilities work for county and school district contracts. We get a mix of firm-fixed-price and...