Conquer the IPMA Challenge 2025 – Unleash Your Global Project Management Mastery!

In a cost-reimbursable contract, the buyer primarily accepts the risk associated with underestimates. This type of contract involves reimbursing the contractor for their allowable and incurred costs, typically on a predetermined basis, plus an additional fee to cover profit.

When the buyer agrees to this contract type, they acknowledge that the contractor will bill them for all incurred costs, which means that if the initial project cost estimates are too low, the buyer will be responsible for paying the additional expenses that arise as the project progresses. Thus, there is a higher risk to the buyer regarding the accuracy of cost estimates, as any budget overruns directly affect their financial obligation.

This dynamic can lead to greater financial exposure for the buyer if proper cost management and controls are not in place. The buyer must effectively monitor and manage the incurred costs and ensure they align with project milestones and deliverables, as they are liable for covering all legitimate costs incurred by the contractor.