![]() ![]() This is the true value of the deal for most cost-reimbursement contracts. The contractor or seller wants to know how much they will be paid for their services in addition to their costs. This would include any provisions on how to approve additional costs and payment for them. The agreement should also include what will occur if the project meets or begins to exceed this estimate. The seller should work hard to provide an accurate estimate to include in the contract. Most cost-reimbursement agreements offer an estimate for the costs. It should determine if the costs are paid with any additional fees, if there are incentives, or if any other part of the deal determines the exact type of cost-reimbursement contract used. The contract should specify what type of contract it is. A typical cost-reimbursement contract should include the following: Type of cost-reimbursement agreement The requirements for your specific contract will depend on many factors including the type of agreement, the buyer, and the legal rules that apply to your jurisdiction. Cost-plus-percentage-of-cost (CPPC) contracts: With these agreements, the seller is paid for all costs plus an additional percentage of those costs.Ī cost-reimbursement contract should be drafted to include some important provisions.This is based on an assessment of the contractor’s performance on the project. Cost-plus-award-fee (CPAF) contracts: The contractor will receive reimbursement with a fixed fee and the potential to earn an additional fee. ![]() This adjustment is based on established targets, and the fee is based on a formula designed to reward lower costs. Cost-plus-incentive-fee (CPIF) contracts: The contractor receives reimbursement and an adjustable fee.Revisions could occur if the work originally in the agreement changes in the course of the project. This fee is negotiated when the contract is finalized and will not change depending on the project cost. Cost-plus-fixed fee (CPFF) contracts: Here, the contractor receives reimbursement plus a predetermined fee.The customer will then reimburse the contractor for a certain portion of the expenses. Cost-sharing contracts: The contractor agrees to assume and share some of the contract expenses.Cost contracts: The contract only requires payment for the actual costs of the project.The prime contractor is usually not permitted to exceed this estimate without permission.Ĭost reimbursement contracts come in many forms, including: In most cases, the vendor provides a cost estimate that helps determine the total budget for the project. The final pricing is determined once the project is finished or on a date set in the contract. These costs may be both direct and indirect. There are tools available to better manage your cost-reimbursement contracts throughout your business.Ī cost-reimbursement contract requires a buyer to cover the costs of any work that is completed. You can even sign electronically to further streamline the contract acceptance process. You can utilize standardized forms that require little editing to complete the next deal. It can track these agreements and improve your processes throughout the contract management lifecycle. Your business needs to track complex information like estimates, project dates, renewals, and much more.Ĭontract management software is the solution to handling your cost-reimbursement agreements. There are several forms of cost-reimbursement contracts, each of which creates unique challenges when trying to manage them. The final pricing of the deal is determined later based on the underlying deal and the actual costs it took to complete a project. A cost-reimbursement contract is an agreement between two parties to provide payment for allowable costs incurred by the other party.
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