FAR 16.301-2—Application.
Plain-English Summary
FAR 16.301-2 explains when a contracting officer may use a cost-reimbursement contract and what documentation is required before selecting that contract type. It covers two threshold conditions: first, when the agency cannot define its requirements well enough to use a fixed-price contract; and second, when performance uncertainties make costs too hard to estimate accurately for any fixed-price arrangement. The section also requires the contracting officer to explain and document the contract-type decision in the written acquisition plan. In addition, the acquisition plan must be approved and signed at least one level above the contracting officer, which adds management review and accountability. In practice, this section is meant to keep cost-reimbursement contracts limited to situations where they are truly necessary, because these contracts place more cost risk on the Government and require stronger oversight than fixed-price contracts.
Key Rules
Use only when fixed-price is not workable
A cost-reimbursement contract is appropriate only when the agency cannot define its requirements sufficiently for a fixed-price contract, or when performance uncertainties prevent costs from being estimated accurately enough for any fixed-price contract. This makes cost-reimbursement the exception, not the default.
Requirements must be sufficiently defined
If the agency can describe the work well enough to support a fixed-price type contract, the contracting officer should not choose cost-reimbursement. The key question is whether the requirement is mature and specific enough to shift cost risk to the contractor.
Cost uncertainty must be substantial
The contracting officer may use cost-reimbursement when uncertainties in performance make reliable cost estimating impossible or impractical for fixed-price contracting. The uncertainty must be real and significant, not merely inconvenient or based on preference.
Document the rationale
The contracting officer must record the reason for selecting the contract type in the written acquisition plan. The file should show why fixed-price was not suitable and why cost-reimbursement is justified for the specific acquisition.
Obtain higher-level approval
The acquisition plan must be approved and signed at least one level above the contracting officer. This requirement ensures supervisory review of the contract-type decision before award planning proceeds.
Tie to acquisition planning rules
This section works together with FAR 7.103(j) and 7.105, which govern acquisition planning and the content of the plan. The contract-type decision must be integrated into the broader planning process, not treated as an afterthought.
Responsibilities
Contracting Officer
Determine whether the requirement and performance risks justify a cost-reimbursement contract, document the rationale in the written acquisition plan, and ensure the plan is routed for approval at least one level above the contracting officer.
Supervisory Approver / One-Level-Above Official
Review the acquisition plan and approve and sign it before the contracting officer proceeds, providing oversight of the contract-type selection and the supporting rationale.
Agency / Acquisition Team
Support the contracting officer by developing the requirement, assessing performance uncertainties, and preparing an acquisition plan that explains why a cost-reimbursement contract is necessary if that type is selected.
Practical Implications
This section is a gatekeeper for cost-reimbursement contracting: if the requirement can be defined well enough for fixed-price, the agency should generally use fixed-price instead.
The written record matters. A weak or generic justification in the acquisition plan can create audit, legal, or policy problems later, especially if the contract type is challenged.
Contracting officers should be careful not to confuse schedule pressure, funding constraints, or convenience with the regulatory standard; the issue is definitional uncertainty or cost-estimating uncertainty.
Higher-level approval is not a formality. Missing the required signature or approval level can undermine the acquisition plan and expose the procurement to protest or internal review issues.
Because cost-reimbursement contracts increase Government oversight burden, this section signals the need for stronger surveillance, more disciplined cost control, and careful pre-award analysis.
Official Regulatory Text
(a) The contracting officer shall use cost-reimbursement contracts only when- (1) Circumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract (see 7.105 ); or (2) Uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract. (b) The contracting officer shall document the rationale for selecting the contract type in the written acquisition plan and ensure that the plan is approved and signed at least one level above the contracting officer (see 7.103 (j) and 7.105 ).