Cost-Reimbursement and Cost-Plus Government Contracts
In contracts under this group, the contractor is paid for all of its allowed expenses for the project, up to a set and agreed limit, plus additional payment to allow the company to make profit. This contract type is often used when quality in the long run is a priority over cost.
These are cost-reimbursement contracts where the contractor does not receive any fee. The government will only pay the incurred costs during the duration of the project.
Cost-Plus-Fixed-Fee (CPFF) Contract
In this contract type, the contractor’s costs responsibility is minimized while that of the government is maximized. The contractor is reimbursed for an allowable cost plus a fixed fee which is the contractor’s profit.
Cost-Plus-Award-Fee (CPAF) Contract
This contract provides a means of giving incentives in contracts which are not wholly dependent on measurement of performance. The fee is made up of two parts: a fixed amount not dependent on performance, and an award amount dependent on the quality of the contractor’s performance.
Cost-Plus-Incentive-Fee (CPIF) Contract
This contract gives a fee which is adjusted by a formula based on the relationship of the total allowable cost versus the target costs.
A cost-reimbursement contract where the contractor is reimbursed only for an agreed portion of the allowed costs and does not receive any additional fee.
Other Types of Government Contracts
This contract is a hybrid of fixed-price and cost-reimbursement contracts. It is used when it is impossible during the signing of contract to estimate the duration of the work, or to estimate the costs. It provides no incentive to the contractor for cost control and labor-efficiency.
This contract provides an indefinite quantity of a product or service, with limits, in a given period. It requires the government to order a minimum quantity of materials or services.
To become a successful government contractor, you must understand the unique challenges and opportunities of each type of government contract. This allows for intelligent decision making, with regards to how to bid for the project and how utilize your resources that will benefit your company and your client.