The redetermined price takes into consideration management effectiveness and ingenuity. The contract generally is used for studying a specific research and development area with a report as the final product. It specifies the contract performance in general terms, and obligates the contractor to devote a specified level of effort over a stated period of time for a fixed-price. The price is based on effort expended, not results achieved. An estimate of total cost is established so that the Government can obligate funds.
Cost contracts are cost-reimbursement contracts under which the contractor receives no fee.
Only costs incurred in the performance of the contract are paid. This contract type is often used in research and development, particularly with nonprofit organizations, or in facilities contracts. This contract type is frequently used for research and development contracts with private companies which stand to benefit from the projects. A target cost, target fee, minimum and maximum fee, and fee adjustment formula are negotiated at the outset. The fee is adjusted after contract performance, using the formula and the maximum and minimum fee limitations.