In procurement management, what is the difference between a fixed-price contract and a cost-reimbursable contract?

• A. Fixed-price transfers most risk to the seller with a set price
• B. Cost-reimbursable reimburses actual costs plus fee with higher buyer risk/uncertainty
• C. Fixed-price reimburses actual costs plus fee
• D. Cost-reimbursable transfers most risk to the buyer with a fixed price

Answer: (D)

In procurement pricing, how the price is set and who bears the cost risk are the core ideas. A fixed-price contract locks in a single price for a defined scope. Because that price won’t change, the seller must cover any cost overruns or inefficiencies themselves, so most of the financial risk sits with the seller. The buyer gains price certainty and preload visibility into what will be paid for the defined work, though changes in scope can complicate things through change orders.

A cost-reimbursable contract, on the other hand, reimburses the seller for actual allowable costs plus a fee or profit. Since costs can vary from what was forecast, the final total isn’t known upfront, placing greater financial risk on the buyer as costs can increase. The seller is protected from cost overruns because those costs are reimbursed.

So the main distinction is who bears the cost risk and how certain the price is: fixed-price shifts most risk to the seller with a set price, while cost-reimbursable shifts more risk to the buyer with costs that can rise above initial estimates. Using fixed-price is common when requirements are well-defined and stable; cost-reimbursable is used when scope is uncertain and flexibility is needed.