5027 COST REIMBURSEMENT CONTRACTS

5027.1 Cost reimbursement contracts provide for the contractor to recover the reimbursable costs it incurs in contract performance, plus a fee (that is, a profit).

5027.2 A reimbursable cost must be:

1. (a) Reasonable in nature and amount;
2. (b) Properly allocable to the contract;
3. (c) Determined in accordance with generally accepted accounting principles; and
4. (d) Not identified as non-reimbursable pursuant to Chapter 33 of Title 27 of the DCMR or under the terms of the particular contract.

5027.3 To ensure that the OAG's payment obligations are not open-ended, a cost reimbursement contract must specify a not-to-exceed cost that the contractor cannot exceed (the "not-to-exceed limit"), except at its own risk, without the Contracting Officer's written approval. Because the contractor can cease performance once it reaches the not-to-exceed cost (unless the Contracting Officer approves an increase), it is not obligated to complete the contract work unless it can do so within the not-to-exceed limit.

5027.4 Cost reimbursement contracts can take three (3) forms:

1. (a) Cost-plus-fixed-fee;
2. (b) Cost-plus-incentive-fee; and
3. (c) Cost-plus-award-fee.

5027.5 The differences between the types of cost reimbursement contracts listed in this section relate to the manner in which the contractor's fee is determined.

5027.6 A cost-plus-fixed-fee contract provides for a fee that is fixed at the contract's inception and is not subject to adjustment unless the contract is modified to change the contract work.

5027.7 A cost-plus-incentive-fee contract provides for a fee that generally is determined by applying a formula based on the relationship between the contractor's total reimbursable cost and a total target cost, subject to a specified minimum and maximum. These contracts also can include incentive formulas based on the

contractor's schedule or technical performance.

5027.8 A cost-plus-award-fee contract provides for:

(a) A base fee fixed at the contract's inception; and

(b) An award fee that the contractor may earn (in whole or in part) during performance, which is designed to motivate superior performance.

5027.9 The award fee in a cost-plus-award-fee contract is determined unilaterally by the Contracting Officer, based on the Contracting Officer's judgment and evaluation of how well the contractor has performed in relation to the award fee criteria identified in the contract. In no event shall the total award fee available to the contractor exceed ten percent (10%).

5027.10 In appropriate circumstances, the Contracting Officer may include a guaranteed maximum price (GMP) in a cost reimbursement contract. A GMP differs from a not-to-exceed amount in that a contractor is required to complete performance of the base scope of work required under the contract for an amount that does not exceed the GMP. Under such an approach, if the total cost exceeds the GMP, the contractor shall be required to complete performance of the base scope of work at its own cost and expense.

SOURCE: Final Rulemaking published at 65 DCR 4406 (April 20, 2018).