Dictionary of Procurement Terms

A cost-reimbursement contract in which the contractor receives no fee. See also: Cost-Reimbursement Contract.

Internal or external forces that may impact cost.

A direct or indirect cost of providing a good, service, or construction, such as labor, materials, fringe benefits, or travel.

A forecasted amount, as distinguished from an actual outlay, based on related cost information available at the time and anticipated future conditions. The process of calculating the probable cost of a job.

A function, organizational unit, or contract for which costs are to be determined and cost data accumulated.

The sum of all direct costs associated with producing a good (e.g., raw materials and direct labor costs).

A cost reimbursement contract that provides for a base fee amount fixed at the inception of a contract. A CPAF also includes an additional fee to be determined at the time of award that is based on an evaluation by the purchaser regarding the quality of the contract performance and the evaluator’s assessment regarding the fee amount necessary to motivate the contractor toward excellence.

A contract that provides for the contractor to be reimbursed for all incurred costs related to their performance of the contract, plus a predetermined fixed amount.

A contract whereby the contractor receives additional compensation for keeping the total amount expended below the agreed-upon maximum contract amount, or for achieving certain pre-specified goals during the performance of the contract.

An agreement in which the contractor is provided a specified percentage profit over and above the actual costs. This pricing method is generally prohibited, or at least discouraged, because it provides an incentive for the contractor to increase, rather than decrease, costs.