Recovering Costs, Making a Profit and Avoiding Enforcement Action Managing Cost Type Contracts

Posted by Guest Author on May 14, 2021

Managing Cost Type Contracts

By Tom Marcinko, Principal, Government Contracting Services Group, Aronson LLC

Many government service contractors successfully enter the market with relatively straightforward time and materials (labor hour) contracts. Eventually, an opportunity to bid and perform on larger and more complex cost reimbursement contracts will present itself. The skills required to manage time and materials contracts differ markedly from the skills required to manage a cost type contract. While the statements of work may be similar, the administrative requirements associated with managing a cost type contract greatly exceed those required for time and materials work.

Managing cost type contracts is a sophisticated undertaking. The contractor must understand what a “cost” is, have an adequate accounting system, establish both direct and indirect budgets (and actively manage them), and manage on an accrual basis with actual, not provisional, indirect rates.

Failure to comply with these requirements can have serious ramifications, including incurring a loss, poor cash flow, inaccurate cost reporting, an inadequate accounting system, and possible false claims violations. An understanding of a firm’s obligations is essential to mitigating risks, maximizing cost recovery, and maintaining the bottom line; essentially the difference between recovering costs and making a profit or losing one’s shirt.

Because the unique brand of management finesse required for cost type contracts can be tricky to navigate, understanding the extensive requirements and obligations up front is vital for protecting cash flow and avoiding loss or a False Claims Act violation later. During the webinar The Art of Managing Cost Type Contracts, I partnered with Deltek to provide a palette of essentials – practical tips on direct and indirect cost and what is and is not reimbursable – as well as some knowledge about utilizing powerful tools like Deltek Costpoint, to help government businesses form a successful cost type contract management strategy.

Gain additional knowledge on:

  • What an "adequate" accounting system must include
  • How to invoice in order to maximize cost recovery while minimizing risk
  • The "Paid-to Cost" rule
  • The limitation of Cost-and-Funds clauses.


The Art of Managing Cost Type Contracts


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About the Author

Tom Marcinko is a principal consultant in Aronson LLC’s Government Contract Services Group. He is responsible for providing clients with a broad variety of both pre- and post-award support. With more than 30 years of government contracting experience, he specializes in proposal development, contract and subcontract administration, FAR compliance, small business programs, and government audits.