Cost Reimbursement Contract

A cost reimbursement contract is a type of contract in which the buyer agrees to pay the seller for all costs incurred in completing a project, plus a fee. This fee is usually a percentage of the total costs and is intended to cover the seller's overhead and profit. The seller bears the risk of cost overruns, but is also able to recover any costs that are less than the estimated amount.

A cost plus contract is a type of contract in which the buyer agrees to pay the seller for all costs incurred in completing a project, plus an additional fee, called a "profit margin," which is intended to cover the seller's overhead and profit. The profit margin is usually a fixed percentage of the total costs. In a cost plus contract, the seller bears the risk of cost overruns, but is also able to recover any costs that are less than the estimated amount.

Both cost reimbursement and cost plus contracts can be useful in situations where the scope of work is not well defined or is subject to change. They allow the seller to be compensated for any additional costs incurred as a result of changes or unexpected challenges that arise during the course of the project. However, these types of contracts can also be risky for the seller, as they may be unable to recover the full amount of their costs, or may not be able to charge a sufficient profit margin to cover their overhead and make a profit.

What different between Cost reimbursement contract & Cost plus Contracts?

The main difference between a cost reimbursement contract and a cost plus contract is the way in which the seller's profit is calculated. In a cost reimbursement contract, the seller's profit is calculated as a percentage of the total costs incurred in completing the project. In a cost plus contract, the seller's profit is calculated as a fixed percentage of the total costs. Another difference is the level of risk that the seller bears. In a cost reimbursement contract, the seller bears the risk of cost overruns, but is also able to recover any costs that are less than the estimated amount. In a cost plus contract, the seller does not bear the risk of cost overruns, but may not be able to charge a sufficient profit margin to cover their overhead and make a profit if the total costs are less than expected.

Finally, the level of transparency and accountability may be different in the two types of contracts. In a cost plus contract, the seller is required to provide detailed documentation of all costs incurred, which allows the buyer to verify that the costs are reasonable and necessary. In a cost reimbursement contract, the seller may not be required to provide such detailed documentation, which could make it more difficult for the buyer to verify the reasonableness and necessity of the costs.