What are the differences between fixed-price and cost-reimbursement contracts?

Fixed-price contracts and cost-reimbursement contracts are two types of agreements between the government and a vendor for the delivery of goods or services. They are used in Government Contracts Law in California and in other jurisdictions. Fixed-price contracts establish a fixed amount for goods or services and are typically used when the exact cost is known in advance. The vendor agrees to a fixed price for their goods or services, and the government is responsible for paying the agreed-upon amount, regardless of the actual cost of the goods or services. Cost-reimbursement contracts are different in that they set a maximum amount the government will pay, and the vendor is responsible for the cost of the goods or services beyond that fixed amount. This type of arrangement is used when the exact cost of goods or services is unknown at the beginning of the contract and may vary as the project progresses. The vendor will invoice the government for the cost of the goods or services, and the government will reimburse the vendor for the cost up to the amount set in the contract. Therefore, the primary difference between fixed-price and cost-reimbursement contracts is that in a fixed-price contract, the government is responsible for the full amount of the contract regardless of actual costs while in cost-reimbursement contracts, the government only pays up to a predetermined maximum amount.

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