Section 3-122-137 - Cost-reimbursement contract(a) The cost-reimbursement contract, subject to section 3-122-133, provides for payment to the contractor of allowable costs incurred in the performance of the contract as determined in accordance with subchapter 15 and as provided in the contract.(b) It establishes at the outset an estimated cost for the performance of the contract and a dollar ceiling which the contractor may not exceed, except at its own expense, without prior approval or subsequent ratification by the procurement officer and, in addition, may provide for payment of a fee.(c) It has a provision whereby the contractor agrees to perform as specified in the contract until the contract is completed or until the costs reach the specified ceiling, whichever occurs first.(d) It is appropriate when the uncertainties involved in contract performance are of the magnitude that the cost of contract performance cannot be estimated with sufficient certainty to realize economy by use of any type of fixed-price contract.(e) It necessitates appropriate monitoring by agency personnel during performance so as to give reasonable assurance that the objectives of the contract are being met.(f) It is particularly suitable for research, development, and study type contracts.(g) It may be used only when it is determined that: (1) A contract is likely to be less costly to the purchasing agency than any other type or that it is impracticable to obtain otherwise the goods, services, or construction;(2) The proposed contractor's accounting system will permit timely development of all necessary cost data in the form required by the specified contract type contemplated; and(3) The proposed contractor's accounting system is adequate to allocate costs in accordance with generally accepted accounting principles. (h) The cost contract is one type of cost-reimbursement contract which provides that the contractor will be reimbursed for allowable costs incurred in performing the contract but will not receive a fee. (i) The cost-plus-fixed fee contract is another type of cost-reimbursement contract: (1) It provides for payment to the contractor of an agreed fixed fee in addition to reimbursement of allowable incurred costs. The fee is established at the time of contract award and does not vary whether or not the actual cost of contract performance is greater or less than the initial estimated cost established for the work. Thus, the fee is fixed but not the contract amount because the final contract amount will depend on the allowable costs reimbursed. The fee is subject to adjustment only if the contract is modified to provide for an increase or decrease in the scope of work specified in the contract.(2) It can be either a completion form or term form. (A) The completion form is one which describes the scope of work to be done as a clearly defined task or job with a definite goal or target expressed and with a specified end-product required. This form of cost-plus-fixed fee contract normally requires the contractor to complete and deliver the specified end-product as a condition for payment of the entire fixed-fee established for the work and within the estimated cost if possible. However, in the event the work cannot be completed within the estimated cost, the agency can elect to require more work and effort from the contractor without increase in fee provided it increases the estimated cost.(B) The term form is one which describes the scope of work to be done in general terms and which obligates the contractor to devote a specified level of effort for a stated period of time. The fixed fee is payable at the termination of the agreed period of time. Payment is contingent upon certification that the contractor has exerted the level of effort specified in the contract in performing the work called for and that the performance is considered satisfactory by the purchasing agency.(C) The completion form of the cost-plus-fixed fee contract is preferred over the term form whenever the following can be defined with sufficient precision to permit the development of estimates within which prospective contractors can reasonably be expected to complete the work: (ii) Specific milestones which are definable points in a program when certain objectives can be said to have been accomplished.(D) In no event should the term form of the cost-plus-fixed fee contract be used unless the contractor is obligated by the contract to provide a specific level-of-effort within a definite period of time.(j) The cost-plus-a-percentage-of-cost contract is another type of cost-reimbursement contract. Its use is restricted or prohibited, pursuant to section 3-122-133. Prior to completion of the work, the parties agree that the fee will be a predetermined percentage of the total cost of the work. The contract provides incentive for the contractor to incur cost at the expense of the State since the more the contractor spends, the greater its fee.[Eff 12/15/95; am and comp 11/17/97; am and comp MAR 21 2008] (Auth: HRS §§ 103D-2 02, 103D-313) (Imp: HRS § 103D-313)