Cost reimbursement

Success Problem

The costs for some projects (e.g. software development or research projects etc.) are not known untill the project is finished.

Impact

Is it possible to agree the price for a project at its closure?

Recommendation

You can use the cost reimbursement contract, also termed as cost-plus contract. This is a contract where a contractor is paid for all of its allowed expenses, plus additional payment to allow for a profit. Cost-reimbursement contracts contrast with fixed-price contract, in which the contractor is paid a negotiated amount regardless of incurred expenses. The essence of the cost reimbursement is determination of the project price by agreement on the exact mode of the price determination during the project or at project closure. It includes the payment for justified and demonstrably expended costs and for agreed fixed or flow charge for overhead, risk and profit for the provider. Its disadvantage for the procuror is that it stimulates the contractor to maximize the justified costs. Cost reimbursement contracts therefore often include remuneration for achieving or overrun of the selected project objectives, as are e.g. planned deadlines or total project costs.

Category

• Cost & Finance