Types of cost-reimbursable contracts are:  

1. Cost Plus Fixed Fee contract (CPPF): Compensation is based on a fixed sum independent of the final project cost. The customer agrees to reimburse the contractor's actual costs, regardless of amount, and a negotiated fixed fee in addition. 
2. Cost Plus Fixed Percentage contract (CPFP):  This is the same as CPFF with the difference that the fee is a negotiated percentage of the cost. 
3. Cost Plus Fixed Fee with Guaranteed Maximum Price contract: The fee is a negotiated fixed sum of money. The contractor quotes a maximum contract price. If price exceeds this maximum, the contractor has to bear the overrun. The contractor agrees to quote the guaranteed maximum only when he is confident of determining it from the plans and specifications available. 
4. Cost Plus Fixed Fee with Bonus contract:  In addition to fixed fee, a bonus is given if the project finishes below budget, ahead of schedule and so on. 

Cost-reimbursable contracts are used mainly for R and D projects and are rarely used in construction projects -  the main reason being that assigning responsibility to an entity for meeting the performance parameters and controlling the performance parameters makes it very complex to the entity to handle. Incorporating guaranteed maximum price and bonus clauses can facilitate better control to some degree.  

Posted Date: 9/27/2012 7:59:16 AM | Location : United States

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