Cost Reimbursement Contract Nz

A cost reimbursement contract is a type of contract between a client and a contractor in which the client pays the contractor for all necessary expenses incurred during the project, plus a predetermined fee or profit. This type of contract is commonly used in construction projects, government procurement, and research and development projects.

In New Zealand, cost reimbursement contracts are governed by the Ministry of Business, Innovation and Employment (MBIE) under the Government Rules of Sourcing (GRS) framework. This framework provides guidelines and standards for government procurement processes, including the use of cost reimbursement contracts.

The main advantage of a cost reimbursement contract is that it allows for flexibility in the project`s scope and requirements. The contractor can make adjustments and changes to the project without the need for a new contract, as all expenses are reimbursed. This reduces the risk for the contractor and allows for a more collaborative approach between the client and the contractor.

However, the use of cost reimbursement contracts also carries some risks. As the client is responsible for all expenses, there is a risk of cost overruns and possible abuse by the contractor if proper controls are not in place. Therefore, it is important for the client to establish clear guidelines and monitoring mechanisms to ensure that the contractor does not exceed the budget.

Another potential issue is the lack of incentive for the contractor to control costs. As the contractor is reimbursed for all expenses, there may be little motivation to find cost-saving measures or optimize the project`s efficiency.

In conclusion, cost reimbursement contracts can be an effective procurement method for certain projects in New Zealand. However, it is important for clients to carefully consider the risks and benefits before entering into this type of contract. Proper monitoring and control mechanisms should be established to ensure that the project stays within budget and meets the desired outcomes.

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