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

Cost Reimbursement and Fixed-Price Contracts are two of the most common types of contracts used in government contracts law in Pennsylvania. Cost Reimbursement Contracts, sometimes called “cost reimbursable” or “cost plus” contracts, are awarded based on reasonable costs. This means that the contractor is reimbursed for their costs plus a fee, and the fee and costs are predetermined by the government before the contract is signed. Fixed-Price Contracts, also called “lump-sum” contracts, have a set price for the completion of the project. Fixed-price contracts are usually used for short-term projects that have a set timeline and do not require much oversight. The biggest difference between the two types of contracts is the payment structure. With a cost reimbursement contract, the contractor is paid back for any costs incurred, plus a predetermined fee for the project. With fixed-price contracts, the contractor is paid one lump sum, which is the total payment for the project. The contractor must complete the project within a certain time frame for the agreed upon price. Cost reimbursement contracts are ideal for complex projects or those requiring long-term contracts, as they allow the contractor to be paid the reasonable costs of the project, and can be adjusted if the project’s scope changes. However, fixed-price contracts are better for simpler projects that have a set timeline and scope. They provide certainty to both the contractor and the government since the project is completed at the agreed upon price with no additional costs incurred.

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

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