Cost contracts are part of the family of cost-reimbursement contracts designed to enable the government to purchase R&D work at an undeterminable unit price at a particular point in time. FAR 16.302(b). Cost contracts do not involve any fee. FAR 16.302(a). Given that the contractor has little incentive to control costs, these contracts pose high risk to the government.
Cost contracts are quite complicated as they require a projection of costs. If costs are not estimated with some accuracy, the government may be required to expend financial resources in excess of the predetermined ceiling price (the maximum amount of money the government intends to pay under the contract). Although the government is solely responsible ...