Subpart 16.3
Cost-Reimbursement Contracts
FAR Subpart 16.3 establishes the rules and requirements for using cost-reimbursement contracts, ensuring proper cost tracking and risk management when costs cannot be accurately estimated.
Overview
FAR Subpart 16.3 covers cost-reimbursement contracts, a family of contract types where the government reimburses the contractor for allowable incurred costs, to the extent prescribed in the contract. This subpart outlines the general principles, types, and specific requirements for cost contracts, cost-sharing contracts, and various forms of cost-plus contracts (incentive-fee, award-fee, and fixed-fee). It also addresses the appropriate contract clauses that must be included. The subpart is essential for situations where uncertainties in contract performance make it difficult to estimate costs with sufficient accuracy for a fixed-price contract, such as research and development or complex projects.
Key Rules
- General Principles (16.301)
- Cost-reimbursement contracts are used when uncertainties prevent accurate cost estimation, and the contractor's accounting system must be adequate for determining costs.
- Types of Cost-Reimbursement Contracts (16.302-16.306)
- Defines and distinguishes between cost, cost-sharing, cost-plus-incentive-fee, cost-plus-award-fee, and cost-plus-fixed-fee contracts, each with unique structures for reimbursement and incentives.
- Contract Clauses (16.307)
- Specifies mandatory clauses that must be included in cost-reimbursement contracts to ensure compliance and proper administration.
Responsibilities
- Contracting Officers: Must determine suitability for cost-reimbursement, ensure contractor accounting adequacy, select the appropriate contract type, and include required clauses.
- Contractors: Must maintain adequate accounting systems, submit allowable cost documentation, and comply with contract-specific requirements.
- Agencies: Oversee contract administration, monitor costs, and ensure compliance with FAR requirements.
Practical Implications
- This subpart exists to provide flexibility for contracts where costs cannot be precisely estimated, reducing risk for contractors and ensuring government oversight.
- It impacts daily contracting by requiring rigorous cost tracking, documentation, and justification for contract type selection.
- Common pitfalls include inadequate accounting systems, improper contract type selection, and failure to include required clauses.