Sec. 21.06.03.03. Types of Cost-Reimbursement Contracts

A. Definitions.

(1) "Cost contract" means a contract which provides for reimbursement for allowable costs but no fee.

(2) "Cost-plus fixed fee contract" means a contract which provides for reimbursement for allowable costs and in addition a fixed fee.

(3) "Cost-reimbursement contract" means a cost contract or a cost-plus fixed fee contract.

B. Application.

(1) Generally, a cost-reimbursement contract is appropriate when the uncertainties involved in contract performance are of such magnitude that the cost of contract performance cannot be estimated with sufficient certainty to realize economy by use of any type of fixed-price contract. A cost-reimbursement contract necessitates appropriate monitoring by State personnel during performance to give reasonable assurance that objectives are being met.

(2) Determinations. A cost-reimbursement contract may be used only when the procurement officer determines in writing that:

(a) This contract is likely to be less costly to the State than any other type or that it is impracticable to otherwise obtain the items of the kind or quality required except under such a contract;

(b) The proposed contractor's accounting system shall permit timely development of all necessary cost data in the form required by the specific contract type contemplated; and

(c) The proposed contractor's accounting system is adequate to allocate costs in accordance with generally accepted accounting principles.

(3) Cost-reimbursement contracts shall provide that costs shall be reimbursed only if they are costs recognized as allowable and allocable under the cost principle regulations in Subtitle 09, or in the contract.

C. Each contractor under a cost-reimbursement type contract shall give notice and secure approval, as required by the contract, before entering into:

(1) A cost-reimbursement subcontract; or

(2) Any other subcontract involving more than $25,000, or 5 percent of the estimated cost of the prime contract. However, the cost-plus-a-percentage-of-cost system of contracting may not be used between contractors and subcontractors.