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

The two main types of contracts used by the government in Washington are cost reimbursement contracts and fixed price contracts. Cost reimbursement contracts provide for the payment of contractor costs that are reasonable, necessary, and allocable to the contract. In this type of contract, the contractor bears the risk associated with performing the work, and the government pays for the costs for the services it receives plus a fee. On the other hand, fixed-price contracts set a maximum price for the goods or services and shift the risk of cost overruns to the contractor. With this type of contract, the contractor is responsible for any costs that exceed the set maximum price. Cost reimbursement contracts are ideal for contracts where the scope of work is unknown or difficult to estimate. They are also beneficial when the work-related costs can be adequately documented and are more cost-effectively handled by the contractor than the government. Fixed price contracts are most beneficial when the scope of work is well-known and the costs associated with the work can be accurately estimated. They are also ideal when the government requires specific performance outcomes. In both cost reimbursement and fixed price contracts, contractors must follow the terms of the contract and the applicable state and federal laws. Contractors must also ensure that the contract does not contain any provisions that limit the government’s legal rights or remedies. Understanding the differences between the two types of contracts can help ensure that projects are completed on time and within budget.

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

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