16.302
Cost contracts
Cost contracts reimburse contractors for allowable costs with no fee, making them ideal for nonprofit R&D work but subject to strict limitations and oversight.
Overview
- FAR 16.302 defines cost contracts as a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs but receives no fee. This contract type is most suitable for research and development (R&D) work, especially with nonprofit educational institutions or other nonprofit organizations. The section also references FAR 16.301-3 for additional limitations and requirements that must be met before using cost contracts.
Key Rules
- Definition of Cost Contracts
- Cost contracts reimburse contractors for allowable costs but do not provide any fee or profit to the contractor.
- Appropriate Use Cases
- These contracts are typically used for R&D projects, particularly with nonprofit organizations and educational institutions.
- Limitations
- The use of cost contracts is subject to the limitations and requirements outlined in FAR 16.301-3, including the need for adequate contractor accounting systems and government oversight.
Responsibilities
- Contracting Officers: Must ensure cost contracts are only used when appropriate, verify compliance with FAR 16.301-3, and confirm the contractor’s accounting system is adequate.
- Contractors: Must maintain accurate records of allowable costs and comply with all cost-reimbursement requirements.
- Agencies: Must oversee contract performance and ensure proper use of cost contracts, especially for R&D with nonprofits.
Practical Implications
- Cost contracts are designed to support projects where precise costs are difficult to estimate and profit is not a motivating factor, such as nonprofit R&D. Contractors must be prepared for detailed cost tracking and no fee payment. Misuse or poor oversight can lead to compliance issues and unallowable costs.