Cost Reimbursement Disadvantages

Cost reimbursement is another alternative contract in which the contractor is reimbursed for the actual cost and fixed costs which incurred for the work .Cost-reimbursable contracts might be used for the projects in which the general scope and nature of the work are defined, but there is uncertainty in quantities or execution. This type of contract is risky for client because under cost-reimbursable contracts, all uncertainties in the scope of project are incurred by the client and the final costs of the project are unclear. Cost-reimbursable alternative contracts offer significant flexibility for responding to conditions that are uncertain. All reimbursable costs must be clearly stated in the contract. Cost reimbursable contract is a complex procedure and requires very careful consideration. This is because determining the direct costs are relatively straightforward, but determining the shared costs may encounter potential levels of difficulty. Direct costs can be defined as the …show more content…
Moreover, client can have a direct influence on the design of the project which can enhance the level of functionality and quality of the design. Level of cost certainty is reasonably high in lump sum contract and tendering. Changing the contract is relatively simple to arrange and manage. Although traditional methods of procurement are tried, tested and accepted in the market, they have some drawback. Firstly, preparing the tender documents is a time-consuming procedure. Tendering documents from an incomplete design can be produced but leads to inaccurate time and cost certainty which may lead to disputes. The overall duration of the projects are longer due to the sequential procedure of providing tender documents and design completion. Contractor cannot collaborate in the design of the project as they are not employed during the design