Which statement is true about Cost-type contracts?

Which statement is true about Cost-type contracts?

• A. They are always fixed-price
• B. They do not reimburse costs
• C. They have no fee
• D. They provide for reimbursement of allowable costs plus a fee; can include a GMP

Answer: (D)

Cost-type contracts are designed so the buyer reimburses the contractor for allowable, allocable costs actually incurred and also pays a fee for profit. This structure addresses uncertain or variable costs by not locking in a fixed price upfront. The arrangement can include a Guaranteed Maximum Price (GMP), which caps total costs while still allowing reimbursement of actual costs up to that limit, plus the fee. That combination—reimbursement of allowable costs plus a fee, with the possibility of a GMP—is what makes this statement true. The other notions don’t fit cost-type contracts: they are not fixed-price, they do reimburse costs, and they typically include a fee.

Cost-type contracts are designed so the buyer reimburses the contractor for allowable, allocable costs actually incurred and also pays a fee for profit. This structure addresses uncertain or variable costs by not locking in a fixed price upfront. The arrangement can include a Guaranteed Maximum Price (GMP), which caps total costs while still allowing reimbursement of actual costs up to that limit, plus the fee. That combination—reimbursement of allowable costs plus a fee, with the possibility of a GMP—is what makes this statement true.

The other notions don’t fit cost-type contracts: they are not fixed-price, they do reimburse costs, and they typically include a fee.