What Are Cost-Reimbursable Government Contractors?

How Cost-Reimbursable Contracts Work

A federal government cost-reimbursable contract falls under the rules of Part 16 of the Federal Acquisition Regulation (FAR). The regulation identifies cost-reimbursement contracts as suitable for undefined requirements. Contractors who perform under these agreements provide an estimate of the cost of work and receive payment based on actual expenses the government regulations define as allowable. The contractor invoices for all associated costs once the project, or a segment of work, completes. If the estimated costs were underbid, the contractor requests a contract change to increase the funded amount. Cost-reimbursement contract awards based on the original estimate result from competitive negotiated procurements, but changes to the estimate after the contract starts typically require a sole-source modification.

Cost-reimbursable contractors must use a DCAA-approved accounting system. This requirement may eliminate smaller businesses, without an adequate accounting structure, from competing for award of cost-type contracts. For contractors not previously certified, DCAA conducts an audit to determine policies and procedures already in place and whether or not they meet federal requirements. Some solicitations require the certified system prior to award and others delay award to allow potential contractors to complete the process. Companies who can't meet the requirements may not receive cost-reimbursable contracts.

The type of work performed by cost-reimbursable contractors encompasses a large spectrum of jobs from research and development to performing administrative actions for undefined numbers of troops for deployment. A contractor who agrees to perform under this type of agreement makes a commitment to progress to completion within a specified amount of time. Through the approved accounting systems, contractors invoice the government for all labor hours, any materials purchased, company administrative rates and an agreed-to fee amount.

Smaller companies -- not big enough to tackle large-scale cost-type contracts -- may still receive cost-reimbursable contracts as subcontractors. Prime contractors without approved purchasing systems must request consent of the contracting officer to utilize a subcontractor and must explain how they will perform cost control. Cost-reimbursable subcontractors must also provide documentation to support all invoices.