Definition: A cost-reimbursement contract is a contract where all allowable contractor expenses are covered to an agreed-upon limit and an additional payment for a profit. A cost-reimbursement contract should be used when there are too many uncertainties in contract performance that will not allow the use of a fixed-price contract.

A cost reimbursement contract is an agreement between parties in a construction project that guarantees the owner reimburses the contractor for costs incurred while they work on the project. Reimbursement, however, is not unlimited. There is a ceiling. The contractor is not paid solely for the costs, but is also guaranteed an additional payment.