Certified Government Financial Manager (CGFM) 2026 – 400 Free Practice Questions to Pass the Exam

Cost reimbursement contracts tend to be more expensive compared to fixed price contracts due to the nature of their structure. In a cost reimbursement contract, the buyer agrees to pay the contractor for the actual costs incurred plus an additional fee that can be fixed or variable. This type of contract is used when the scope of work is uncertain, and it involves a higher level of risk for the buyer, as the total costs can be unpredictable.

This uncertainty can drive up costs, as contractors may include contingency amounts to cover potential overruns or unforeseen expenses. In contrast, fixed price contracts stipulate a set price for the delivery of services or goods, which usually encourages cost-effectiveness and efficiency, as contractors have a clear financial incentive to control their costs to maximize profit.

Therefore, the inherent characteristics of cost reimbursement contracts generally lead to higher overall expenditures, making them less economical compared to fixed price contracts in many situations.