Question

Under FAR Subpart 16.3, Cost Reimbursement Contracts are defined as a type of contract that permits payment of allowable incurred costs, to the extent prescribed in the contract. From the e-Activity, defend or refute the reasonableness in the use of this type of contract by government agencies. Based on your position, recommend a revision that would make use of the contract more reasonable.

Take a position on whether cost reimbursement contracts are necessary in government contracting to the extent they provide a means not available in other contract forms. Discuss under what circumstances you would consider the use of cost reimbursement contracts. Include an example to support your position.

Answer 1

Reasonableness in using ‘Cost Reimbursement Contracts’ by Government agencies can be proved as below:

• Since cost reimbursement contracts allows for reimbursement of allowable incurred cost as provided in the contract thereby putting up a ceiling, the contractor cannot increase such cost without the prior permission of the contracting officer.
• There are strict restrictions or limitations in using such type of contracts which are not available for other kinds of contract.

Hence these are some of the conditions which prove that use of cost reimbursement contacts is reasonable for government agencies.

In order to make the cost reimbursement type of contracts more reasonable it would be advisable for government to keep a continuous check on the performance of the contractor through proper inspection and control.

There are certain restrictions and means involved under ‘cost reimbursement contracts’ which are not included under ‘fixed price contracts’ and these are essential for government contracting. Some of these are:

• Ban on the procurement of commercial items.
• Government surveillance is required to pertinently control the activities of the contractor.
• The written procurement plan should be signed by the authority which is at least one level above of the contracting officer.
• The appropriate cost of the contract is determined by accounting system of the contractor.

Such type of contracts is suitable under those circumstances when some uncertainties are involved in completion of the contract and therefore cost could not be estimated correctly as required.