What is a Cost-Reimbursable Contract?
In a cost-reimbursable (cost-plus) contract, the buyer pays the seller's legitimate actual costs plus a fee — fixed (CPFF), incentive-based (CPIF), or award-based (CPAF). Cost risk sits mostly with the buyer, which is the price of flexibility when scope can't be pinned down yet.
Use it for R&D, emergencies, and work too uncertain for anyone to fix a price honestly. The buyer's defense is oversight: audit rights, cost ceilings, and incentive structures that make the seller care about efficiency.
Formula
CPIF seller share: final fee = target fee + (target cost − actual cost) × seller %
Worked example
A pharma company contracts a lab for novel vaccine research as CPFF: costs reimbursed plus a fixed $500K fee. Nobody can price the unknown — fixing the fee at least means the lab doesn't profit more by burning more money, and audit clauses keep the costs honest.