Cost-Reimbursable Contract

A cost-reimbursable contract is a variant of a contract that involves making a payment from the buyer to the seller in reimbursement for the seller’s actual costs. Added to that is a fee that typically represents the seller’s profit. When analyzing costs they are typically broken down into two categories. Those categories are direct costs and indirect costs. Direct costs are defined as the costs that have been incurred only for the purpose of the project. One example of this type of cost can be the salaries of the full time staff members, or equipment purchased exclusively for use in the project. Indirect costs represent costs that refer to more general, more broad types of costs, such as administrative costs and general overhead costs. Cost-reimbursable contracts often contain incentive-based contracts in which the seller will receive a bonus payment or incentive if the seller meets or exceeds a series of pre-determined target objectives, such as meeting a particular schedule or keeping the activity below a certain cost.