FAR 16.301—General.

Description.

FAR 16.301-1 explains what a cost-reimbursement contract is and how it works in practice. It covers two core ideas: first, the Government pays the contractor for allowable incurred costs, but only to the extent the contract says those costs are payable; second, the contract includes an estimated total cost that is used to obligate funds and to set a ceiling on the contractor’s spending authority. The section is important because it distinguishes cost-reimbursement contracting from fixed-price contracting: the Government accepts more cost risk, but it also requires tighter oversight of cost allowability, funding, and cost growth. In practice, this means the contractor can recover qualifying costs as they are incurred, but cannot treat the estimate as a guaranteed target or exceed the funded ceiling without approval from the contracting officer. The section therefore sets the basic financial framework for managing cost-reimbursement performance, funding control, and contractor notification when costs are likely to rise.

Application.

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.

Limitations.

FAR 16.301-3 sets the gatekeeping rules for when the Government may use a cost-reimbursement contract. It covers four pre-award conditions: consideration of the contract-type factors in FAR 16.104, approval of a written acquisition plan one level above the contracting officer, confirmation that the contractor’s accounting system can properly determine contract costs, and a finding that adequate Government resources are available to award and administer a non-firm-fixed-price contract, including meaningful surveillance during performance. The section also incorporates the oversight requirement in FAR 1.602-2 and points back to FAR 7.104(e) for acquisition planning. In addition, it imposes a categorical prohibition on using cost-reimbursement contracts for commercial products and commercial services under Parts 2 and 12. In practice, this section exists to ensure cost-reimbursement contracting is used only when necessary, justified, and supportable, because these contracts place more cost risk and administration burden on the Government than fixed-price arrangements.