Cost-reimbursement contract — US FAR
A cost-reimbursement contract under the US Federal Acquisition Regulation pays allowable costs incurred to the extent specified in the contract, rather than simply paying a fixed total price.
Allowable costs matter
The term does not mean that every expense incurred by the contractor will be reimbursed. Payment depends on whether the cost is allowable and on the terms governing the contract. Keep the cost basis separate from any applicable fee arrangement.
Estimated cost and ceiling
The contract establishes an estimated total cost for committing funds and setting a ceiling. Exceeding that ceiling without the contracting officer’s approval is at the contractor’s risk. An estimate is therefore not an unrestricted spending authority.
Reading the commercial terms
Identify the reimbursement provisions, cost ceiling and approval process before planning delivery. Track expenditure against the agreed basis, rather than treating an internal budget increase as permission to charge the buyer. Compare this mechanism with firm-fixed-price and time-and-materials arrangements: each places a different question at the centre of payment.
Sources
Reviewed: October 27, 2026
Related terms
Firm-fixed-price contract — US FAR
A firm-fixed-price contract under the US Federal Acquisition Regulation does not adjust its price merely because the contractor’s actual performance costs diffe…
Time-and-materials contract — US FAR
A time-and-materials contract under the US Federal Acquisition Regulation pays qualifying labour at specified hourly rates and materials on the applicable cost …