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197:) contracts pay a fee based upon the contractor's product. An aircraft development contract, for example, may pay award fees if the contractor's product achieves certain speed, range, or payload capacity goals. For some contracts, the award fee is determined subjectively by an awards fee board whereas for others the fee is based upon objective performance metrics.
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of oversight and audits. The government delaying final payment for closeout of the contract can increase the ultimate cost of a contract because of the ability of a provider to bill for increased overhead and general and administrative costs, increased wages, and many other costs which can be passed on to the government.
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The distribution of annual contract values by sector category and award types indicates that cost plus contracts in the past had the largest importance in research, followed by services and products. In 2004, however, services replaced research as the dominant sector category for cost-plus contracts.
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Requires additional oversight and administration to ensure that only permissible costs are paid and that the contractor is exercising adequate overall cost controls. Ensuring that costs claimed are consistent with the cost accounting rules of doing business with the government can increase the cost
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With cost-plus contracting being designed primarily for research and development, cost plus contracts were used in many different efforts unrelated to research and development. The percentage of cost-plus contracting within a contract is expected to be correlated to the percentage share of research
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contracts pay a fee that increases as the contractor's cost increases. Because this contract type provides a disincentive for the contractor to control costs it is rarely used by government, although it is prevalent in private industry. Federal legislation in the 1940s excluded use of this type of
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A cost-type contract can be used where technical requirements and specifications are very general, vague, uncertain or unknown, or circumstances do not allow the requiring organization to define its requirements sufficiently to allow for a fixed-price type contract, or uncertainties involved in
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has also found that where the additional element is not expressed as a percentage but as an additional amount which rises in bandings in line with the contractor's cost increases may effectively constitute a "cost plus percentage of cost" contract and therefore fall within the
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Between 1995 and 2001 fixed fee cost-plus contracts constituted the largest subgroup of cost-plus contracting in the U.S. defense sector. Starting during 2002 award-fee cost plus contracts became more numerous than fixed fee cost plus contracts.
266:, or for cases where there is not enough data to estimate the final cost accurately. A cost-plus contract is often used when performance, quality or delivery time is a much greater concern than cost, such as in the
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There are four general types of cost-reimbursement contracts, all of which pay every allowable, allocatable, and reasonable cost incurred by the contractor, plus a fee or profit which differs by contract type.
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Incentives which share the risk between government and contractor lead less efficient contractors to underestimate their target costs in order to maximize their profits from actual costs. This
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for the price of research and development that none could pay on its own. This enabled the firms to create technology products that eventually created entire new markets and economic sectors".
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For all other contract types combined the relative ranking is reversed to the original cost-plus order, meaning that products are most numerous, followed by service and research.
124:, one of the early developers of industrial engineering, used "cost-plus-a-fixed sum" contracts for his building contracting business. He described this method in an article in
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specifically prohibit the use of this type for U.S. Federal
Government contracting and in federal sub-contracts except firm fixed price ones (FAR Part 16.102). The US
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deviate from this pattern by continuing to make extensive usage of cost-plus contracting despite the programs being subsequent to the research and development state.
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of successful contract performance from the contractor to the buyer. It is used most commonly when the item purchased cannot be defined explicitly, as for
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Under a cost plus a fixed-fee contract, the profit element does not vary with costs and there is no incentive for contractors to control costs.
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270:. Cost plus contracting was expanded to include services such as engineering, consulting, and a variety of other such efforts in the 1980's.
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to encourage wartime production by
American businesses. According to Martin Kenney, they "allowed what were then small technology firms like
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The withholding of funds which is required under the rules governing cost plus contracting can increase the cost of the contract.
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569:. History of Acquisition in the Department of Defense. Washington, DC: Cambridge University Press. pp. 50–52, 76–85.
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contract performance do not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract.
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experienced significant cost and delivery delays on some cost-plus contracts contributing to delays of some
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reduces the ability of the government to distinguish between efficient and inefficient contractors.
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Flexible, allowing for changes of specification within the contractual scope of work.
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to allow for risk and incentive sharing. Cost-reimbursement contracts contrast with
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Cost-plus contracts were first used by the government in the United States during
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Defense
Industrial Initiatives Group – Cost-plus Contracting Narrated Slide Show
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Defense
Industrial Initiatives Group – Cost-plus Contracting Narrated Slide Show
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A cost-reimbursement contract is appropriate when it is desirable to shift some
633:"NASA has to be trolling with the latest cost estimate of its SLS launch tower"
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Contract involving additional payment to allow for risk and incentive sharing
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Defense
Industrial Initiative Group – Current Issues: Cost Plus Contracting
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B-196556, AUG 5, 1980 (Department of State -- Method of
Payment Provisions)
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Making Time: Lillian Moller
Gilbreth, a Life Beyond "Cheaper by the Dozen"
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Allows more oversight and control of the quality of the contractor's work.
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Federal
Acquisition Regulations Subpart 16.3—Cost-Reimbursement Contracts
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487:, Volume 19, November 1944, Number 1, page 27, accessed on 22 August 2024
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undertaken in any given program. However, several programs, such as the
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The central repository for U.S. Government contract information.
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such that a contractor is paid for all of its allowed expenses,
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There is limited certainty as to what the final cost will be.
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deal primarily with the United States and do not represent a
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19:"Cost-plus" redirects here. For the pricing technique, see
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204:contract in various defense projects, and the U.S.
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776:Indefinite-delivery/indefinite-quantity contract
531:, dated 5 August 1980, accessed 1 September 2022
659:"The Simple Economics of Incentive Contracting"
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669:(5). American Economic Association: 837–846.
39:The examples and perspective in this article
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631:Berger, Eric (27 August 2024).
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201:Cost plus percentage of cost
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771:Time-and-materials contract
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565:Poole, Walter S. (2013).
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128:in 1907, comparing it to
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236:Incentive-fee contracts
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134:guaranteed maximum price
180:Cost-plus-incentive fee
149:Fairchild Semiconductor
657:McCall, J. J. (1970).
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169:Cost plus a fixed-fee
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761:Fixed-price contract
328:fixed price contract
244:Fixed-fee contracts
228:Award-fee contracts
111:fixed-price contract
59:create a new article
51:improve this article
458:Industrial Magazine
405:Cost-Plus Contracts
311:Space Launch System
210:Comptroller General
191:Cost-plus-award fee
126:Industrial Magazine
766:Cost-plus contract
618:2009-04-17 at the
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383:Cost-plus pricing
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67:October 2023
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141:World War I
130:fixed price
105:additional
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317:Advantages
313:launches.
299:, and the
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585:877851275
345:Criticism
136:methods.
55:talk page
749:Contract
616:Archived
464:: 31–37.
372:See also
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49:You may
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683:1818284
117:History
107:payment
97:, is a
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301:CVN-21
297:CVN-68
274:Recent
751:types
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254:Usage
159:Types
57:, or
690:2024
671:ISSN
644:2024
581:OCLC
571:ISBN
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307:NASA
260:risk
195:CPAF
185:CPIF
173:CPFF
147:and
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103:plus
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