Cost reimbursable contracts

A cost reimbursable contract is a contract in which the government reimburses the contractor for the allowable costs it incurs while performing the work. The final amount paid depends on the costs actually incurred and validated, not on a firm price fixed at award. CanadaBuys defines it as a basis of payment and says it should be used primarily when the scope and requirements of the work are uncertain.

Because the price is not fixed in advance, this basis of payment shifts more cost risk to the government. For that reason, federal guidance attaches conditions to it: an adequate contractor accounting system, a way for the government to review claimed costs, a ceiling on spending, and a formal cost review at the end of the work.

What the government requires before using this basis of payment

The CanadaBuys Buyer's Guide sets two conditions for a cost reimbursable arrangement. First, the contractor's accounting system must be adequate to determine the costs that apply to the contract. Second, the government must have the resources and mechanisms to review and validate the costs the contractor claims. Where either condition is missing, the cost reimbursable basis is not a sound fit. Both conditions are described on the cost reimbursable basis of payment page.

Fee options and provisional price

The Government of Canada recognizes several cost reimbursable options. The types of basis of payment page lists these:

• No fee: the contractor is reimbursed for allowable costs only.
• Fixed fee: allowable costs are reimbursed and a set fee is added.
• Target cost with incentive fee: the fee is tied to performance against a target cost.
• Fee based on actual costs: the fee is calculated from the costs incurred.
• Provisional price: a cost reimbursable start that can later move to fixed pricing.

CanadaBuys describes provisional pricing as beginning on a cost reimbursable basis where requirements and costs are uncertain, with a defined ceiling price or limitation of expenditure. It can transition to fixed pricing once the requirements become clearer.

Ceiling price or limitation of expenditure

Every contract that uses a cost reimbursable basis of payment must include either a ceiling price or a limitation of expenditure. This sets the most the government will pay under the contract and gives the contractor a firm boundary to work within. Costs that would push spending past that limit are not covered unless the contract is formally amended.

Cost submissions and the finalization of cost amendment

CanadaBuys states that all cost reimbursable contracts require a cost submission at contract completion. Multi-year contracts generally require an annual cost submission, except for repair and overhaul services. These requirements are set out in the guidance on managing cost reimbursable contracts. Federal procurement guidance identifies clause C0300C as the clause requiring the contractor to give the contracting officer a cost submission at completion, or annually for certain multi-year contracts. The clause is referenced in the PWGSC guidance publication.

For contracts that meet the applicable threshold, the contracting authority places a certification on the procurement file that the final amount paid represents a reasonable price. That certification should rest on a cost audit where one was conducted. The final agreed amount is then formalized in a contract amendment called a finalization of cost amendment. It adjusts the contract price to the final price and states that no further claims may be submitted.

What it means for a supplier bidding on Canadian public contracts

A supplier working under a cost reimbursable contract needs accounting records that identify and support every cost charged to the contract. It must stay within the stated ceiling price or limitation of expenditure, and it must deliver the cost submission at completion and, where applicable, each year of a multi-year contract. Suppliers should also keep documentation that shows each claimed cost is allowable and reasonable, because the government may review or audit it. Finally, the supplier takes part in final cost reconciliation and the finalization of cost process before the contract price is closed.