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fixed price contract vs cost reimbursable contract vs time and material contract | Difference between fixed price contract, cost reimbursable contract, time and material contract

This page compares fixed price contact vs cost reimbursable contract vs time and material contract and mentions difference between fixed price contract,cost reimbursable contract and time and material contract.

fixed price contract

The fixed price contract is the most common type. In this one price is agreed between the buyer and seller for all the project work. In this FP contact, buyer will have least amount of cost risk once they have well defined scope.

Following are the types of fixed price contract:
• Firm Fixed Price(FFP) as described
• Fixed Price Plus Incentive Free(FPIF)

cost reimbursable contract

In cost reimbursable contract seller's costs are reimbursed in addition to some extra amount. In this type, buyer bears most of the cost risk as total project costs are not known. This type of contract is used when buyer specifies what exactly is needed. Based on this seller will write detailed contract SoW.

Following are the types of cost reimbursable contract:
•  CR contract as described
•  CPFF(Cost Plus Fixed Fee)
•  CPAF(Cost Plus Award Fee)
•  CPIF(Cost Plus Incentive Fee)

time and material contract

This time and material contract is used for small amount projects. In this type, contract is priced on hourly basis or item basis. This T&M contract utilizes both FP and CR contract.

Here, buyer will have medium cost risk compare to CR and FP contracts.

Following table mentions major difference between these contract types.

Contract Type Known Scope Share of Risk Incentive for meeting milestones Predictability of cost
Fixed total cost Very High All contractor Low Very high
Fixed unit price High Mostly project Low High
fixed price with incentive fee High Mostly project High Medium-High
fixed fee with price adjustment High Mostly project Low Medium
CR with fixed Fee Medium Mostly project Low Medium High
CR with Percentage Fee Medium Mostly project Low Medium High
CR with incentive fee Medium Mostly project High Medium
CR with Award fee Medium Mostly project High Medium
Time and Material Low All Project Low Low

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