FAR 16.302—Cost contracts.
Plain-English Summary
FAR 16.302 explains what a cost contract is, when it may be used, and where its use is limited. It defines a cost contract as a cost-reimbursement contract with no fee, then identifies the type of work for which it may be appropriate—especially research and development, including work performed by nonprofit educational institutions and other nonprofit organizations. The section also points readers to the broader limitations in FAR 16.301-3, which means a contracting officer cannot treat this as a free-standing authority without checking the general rules governing cost-reimbursement contracting. In practice, this section matters because it signals that the Government may reimburse allowable costs without paying profit or fee, but only in situations where that structure fits the acquisition objective and complies with the cost-reimbursement requirements. For contractors, it means they may recover allowable costs but should not expect a fee component. For contracting officers, it is a reminder to justify the contract type carefully and ensure the arrangement is consistent with the FAR’s cost-reimbursement limitations.
Key Rules
No fee is paid
A cost contract is a cost-reimbursement contract in which the contractor receives no fee. The Government reimburses allowable costs, but the contract does not include profit or fee compensation.
Used for R&D work
A cost contract may be appropriate for research and development work. The section highlights R&D as the primary setting where this contract type may fit.
Common with nonprofits
This contract type is especially associated with nonprofit educational institutions and other nonprofit organizations. The FAR signals that these entities may be suitable candidates for a no-fee cost-reimbursement arrangement.
Subject to broader limits
The section expressly refers to FAR 16.301-3 for limitations. That means the use of a cost contract must also satisfy the general restrictions and policy requirements applicable to cost-reimbursement contracts.
Responsibilities
Contracting Officer
Determine whether a no-fee cost-reimbursement structure is appropriate for the acquisition, especially for R&D work. The contracting officer must also check and apply the limitations in FAR 16.301-3 before using a cost contract.
Contractor
Perform the work under a reimbursement-only arrangement and understand that compensation is limited to allowable costs, with no fee included. The contractor must manage performance and billing accordingly.
Agency
Use cost contracts only when the acquisition purpose and organizational context support that approach, particularly for research and development involving nonprofit entities. The agency should ensure the contract type aligns with policy and funding objectives.
Practical Implications
A cost contract can be useful when the Government wants to support R&D without paying a fee, especially with nonprofit performers.
The biggest pitfall is assuming that because the contract is for R&D, a cost contract is automatically allowed; FAR 16.301-3 still controls.
Contractors should not build expected profit into pricing or budgeting, because the contract provides reimbursement of allowable costs only.
Contracting officers should document why a no-fee arrangement is appropriate and confirm that the acquisition fits the FAR’s cost-reimbursement rules.
This section is short, but it is important because it defines the basic economics of the contract type and points to the governing limitations that must be checked before award.
Official Regulatory Text
(a) Description. A cost contract is a cost-reimbursement contract in which the contractor receives no fee. (b) Application . A cost contract may be appropriate for research and development work, particularly with nonprofit educational institutions or other nonprofit organizations. (c) Limitations . See 16.301-3 .