Overview
FAR 16.302 defines a cost contract as a specific type of cost-reimbursement vehicle where the contractor is reimbursed for allowable costs but receives no profit or fee.
Key Rules
- Zero Fee: The defining characteristic is that the contractor receives no fee above the actual allowable costs incurred.
- Preferred Use Case: It is specifically identified as appropriate for research and development (R&D) work.
- Target Entities: The regulation highlights its suitability for contracts with nonprofit educational institutions or other nonprofit organizations.
- Regulatory Constraints: These contracts are subject to the general limitations of cost-reimbursement contracts specified in FAR 16.301-3, such as the requirement for an adequate accounting system.
Practical Implications
- This contract type is commonly used when the performing organization (like a university) is motivated by the research outcomes or public benefit rather than commercial profit.
- Because there is no fee, the government's financial risk is limited to cost overruns, while the contractor must ensure rigorous cost tracking to justify all reimbursement claims.