Overview
FAR 16.303 defines a cost-sharing contract as a cost-reimbursement vehicle where the contractor receives no fee (profit) and is only reimbursed for a specific, agreed-upon portion of its allowable costs.
Key Rules
- No Fee: The contractor is prohibited from earning a profit or fee on the contract.
- Partial Reimbursement: The government and the contractor split the costs; the government only pays its negotiated share of allowable expenses.
- Mutual Agreement: The contractor must voluntarily agree to absorb a portion of the costs.
- Pre-requisite for Use: There must be an expectation that the contractor will receive "substantial compensating benefits" from the work performed.
- Compliance: The contract is subject to the general limitations of cost-reimbursement contracts (FAR 16.301-3), such as the requirement for an adequate accounting system.
Practical Implications
- Research and Development (R&D): These contracts are commonly used in R&D projects where the contractor is willing to trade immediate profit for long-term benefits, such as gaining commercial intellectual property or developing technology with high market potential.
- Cost Risk: The contractor assumes higher financial risk than a traditional cost-plus-fixed-fee contract because they must fund a portion of the performance out-of-pocket.