Cost Reimbursement Contracts

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Commercial and Commercial-Type Products According to the Federal Acquisition Regulations (FAR) “Commercial item” means any item, other than real property, customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and has been sold, leased, or licensed to the general public, or has been offered for sale, lease, or license to the general public. A “commercially available off-the-shelf” (COTS) item is any item or supply (including construction material) that is a commercial item sold in substantial quantities in the commercial marketplace, and offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial…show more content…
24). The contractor is paid for all of its allowed expenses to a set limit, plus additional payment to allow for a profit. The FAR prohibits the use of cost-reimbursement contracts to acquire commercial items. The cost reimbursement contract is considered high risk for the government because of the potential for cost escalation and because the government pays a contractor’s costs of performance regardless of whether the work is completed. The two major reasons for the inability to estimate costs accurately are the lack of knowledge of the work needed to meet the requirements of the contract (for example, research contracts which involve substantial uncertainties), and the lack of cost experience in performing work (for example, the development of a weapons system where manufacturing techniques and specifications are not stable enough to warrant a fixed-price…show more content…
This type of contract is used when uncertainties in contract performance are so large that the cost of performance cannot be estimated to permit use of a fixed price contract. Rather than guaranteeing to perform under a contract at a specified price, the contractor agrees to deliver its “best efforts” to perform the requirements in return for costs incurred and a reasonable fee. This type of contract requires negotiation of estimated costs and the payment of a fixed dollar fee to the contractor. The fee cannot be changed unless the government changes the scope of work in the contract. Cost-reimbursement contracts involve much more government oversight than fixed-price contracts. This means the government incurs additional administrative costs on top of what it is paying the contractor.
Sole Source and Competitive Acquisition Processes A sole source contract means there is only one entity that can provide the contractual services needed. These types of contracts are rarely issued because of the need for open and fair competition. An example would be Boeing receiving a sole source contract to provide spare parts for the Apache helicopter, since they are the only manufacturer of this particular
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