FAR 16.303—Cost-sharing contracts.
Plain-English Summary
FAR 16.303 explains what a cost-sharing contract is, when it may be used, and what limits apply. It covers three main subjects: the definition of a cost-sharing contract, the circumstances under which the Government may use this contract type, and the cross-reference to the broader limitations in FAR 16.301-3. In practical terms, this section describes a cost-reimbursement arrangement where the contractor does not receive a fee and instead is paid only for an agreed-upon share of allowable costs. The key policy idea is that the contractor voluntarily accepts part of the financial burden because it expects substantial compensating benefits, such as access to research results, technology development, or other business advantages. For contracting officers, this section is a reminder that cost-sharing is not a default contract type and must be justified by the expected mutual benefit and the limitations in the cost-reimbursement rules. For contractors, it signals that participation means real financial risk because some allowable costs will not be reimbursed.
Key Rules
No fee is paid
A cost-sharing contract is a cost-reimbursement contract with no fee. The contractor is reimbursed only for an agreed-upon portion of allowable costs, so the contractor must absorb the rest.
Shared cost burden
The contractor agrees to pay part of the costs itself. This arrangement is appropriate only when the contractor expects substantial compensating benefits from the work.
Allowable costs only
Reimbursement is limited to allowable costs, and only the agreed-upon share of those costs is paid by the Government. Unallowable costs remain the contractor’s responsibility.
Use only when justified
Cost-sharing is not for ordinary procurement needs. It is used when the expected benefits to the contractor help justify the contractor’s willingness to absorb part of the project cost.
Subject to broader limits
This section expressly points to FAR 16.301-3 for additional limitations on cost-reimbursement contracting. Those broader rules still control whether this contract type is appropriate.
Responsibilities
Contracting Officer
Determine whether a cost-sharing contract is appropriate, ensure the arrangement is consistent with FAR 16.301-3, and document that the contractor’s expected compensating benefits justify the cost-sharing structure.
Contractor
Agree to absorb a portion of the project costs, accept that no fee will be paid, and manage performance knowing reimbursement will cover only an agreed share of allowable costs.
Agency
Use cost-sharing only when the acquisition strategy supports it and when the Government’s objectives are served by a contractor that has a meaningful financial stake in the work.
Practical Implications
Contractors should treat cost-sharing as a real investment, not just a pricing variation, because they will not recover all allowable costs and will receive no fee.
Contracting officers should verify that the contractor’s expected benefits are substantial enough to support the arrangement; otherwise, another contract type may be more appropriate.
A common pitfall is assuming all project costs will be reimbursed. Only the agreed portion of allowable costs is payable, and unallowable costs are never reimbursable.
This section often comes up in research, development, and other projects where the contractor may gain technical data, prototype experience, or market advantage from participating.
The cross-reference to FAR 16.301-3 matters: even if the parties want a cost-sharing deal, the broader cost-reimbursement limitations still apply and must be checked before award.
Official Regulatory Text
(a) Description. A cost-sharing contract is a cost-reimbursement contract in which the contractor receives no fee and is reimbursed only for an agreed-upon portion of its allowable costs. (b) Application . A cost-sharing contract may be used when the contractor agrees to absorb a portion of the costs, in the expectation of substantial compensating benefits. (c) Limitations . See 16.301-3 .