What does the term "cost-reimbursement contract" refer to?

The term "cost-reimbursement contract" refers to a type of contract in which the government pays for allowable costs incurred by the contractor while performing the work, rather than providing a fixed price for services rendered. This means that the contractor can recover their costs, as long as they are reasonable, allowable, and allocable under the terms of the contract.

This contract type is particularly useful in scenarios where the exact nature of the work is uncertain at the outset, allowing for flexibility in managing and covering expenses that arise during the performance of the contract. Typically, the contractor is required to keep detailed records of costs and provide documentation to justify the expenses incurred.

While a contract with fixed payments or one that specifies maximum costs deals with cost predictability and risk-sharing differently, neither fits the definition of a cost-reimbursement contract, which focuses on compensating the contractor for the actual costs they manage. The option regarding subcontracting arrangements does not pertain directly to the reimbursement aspect of this type of contract, as it applies more to the structure of the contract rather than the payment method related to costs.