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Cost Reimbursable Contracts – A PMP Definition
By Sivaraj Dhanasekaran

In a Cost Reimbursable contract, all the allowable costs to produce the products or services (deliverables) of the project is charged to the buyer of the contract. All costs related to the project during the entire project duration will be charged to the buyer and the buyer has to reimburse this cost to the seller. Thus the seller is risk free to produce the product or service of the project.

Because of the nature of this contract buyers usually carry the bigger risk as the total cost is uncertain. This is the least preferred contract type for the buyers, but a favorite for sellers.

Such contracts are used for projects, where lots of uncertainties are associated with the scope and deliverables (mainly R&D projects).

Pros

  1. Gives advantage to the seller as it protects their profits
  2. Buyers can change the scope very easily

Cons

  1. Very risky for the buyer as costs are uncertain
  2. Seller is not motivated to keep the costs low

Dhanasekaran, Sivaraj is a certified PMP and works as a Senior Project Manager in one of the leading MNC banks in Singapore. He has over 13 years IT experience and handled banking projects as well as managed production support team for complex Treasury applications for various MNC banks.

He loves to share his experience and knowledge gained as Project Manager and also providing guidance to people who wanted to obtain PMP certification. He runs a project management forum at www.sgpm.wordpress.com.

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