Why would a supplier prefer a cost-reimbursable contract?

A supplier would prefer a cost-reimbursable contract primarily because it assures payment for all costs incurred in the performance of the contract. This type of contract allows the supplier to be reimbursed for both direct and indirect costs, along with a fee or profit margin that reflects their involvement in the project.

This arrangement significantly reduces financial uncertainty for the supplier, as it guarantees that they will not bear the risk of cost overruns — a factor that can often occur in projects with unpredictable variables. In situations where the scope of work is not clearly defined, or where there are many unknowns, a cost-reimbursable contract protects the supplier from the potential financial burden of unforeseen expenses. This increases their willingness to take on projects that might otherwise be considered too risky if they were to only earn a fixed price.

The structured nature of cost-reimbursable contracts is appealing since it aligns the supplier's success with the successful completion of the project, rather than solely focusing on profitability margins as seen in fixed-price contracts.