HKSM
Cost-Reimbursable Contract
A contract in which the buyer repays the seller for allowable, documented costs and also pays an extra fee that generally represents the seller's profit.
Key Points
- Buyer covers actual, allowable costs and pays a separate fee for the seller's profit.
- Greater cost risk is carried by the buyer; the seller's financial risk is lower.
- Requires strong cost tracking, reporting, and audit rights; may include a cost ceiling or not-to-exceed amount.
- Common subtypes include CPFF, CPIF, and CPAF, which differ in how the fee is calculated.
Example
A government agency funds an R&D effort with uncertain scope. The contractor bills for labor, materials, and other allowable expenses, and also receives a negotiated fee for profit. If the contract is CPIF, the fee can increase slightly if costs are controlled below target.
PMP Example Question
A project involves exploratory work with unclear scope. The buyer wants to reimburse the contractor's allowable costs and pay a profit fee, possibly with incentives tied to cost performance. Which contract type best fits this need?
- Firm-fixed-price (FFP)
- Cost-plus-incentive-fee (CPIF)
- Time and materials (T&M)
- Unit price
Correct Answer: B — Cost-reimbursable contract (e.g., CPIF)
Explanation: Cost-reimbursable contracts pay actual costs plus a fee for profit, and CPIF adds incentives tied to performance, which suits uncertain R&D work.
