When might a project manager choose a Cost-reimbursable contract?

A project manager might choose a cost-reimbursable contract when the project scope is uncertain because this type of contract provides flexibility in a situation where future costs are difficult to predict. Cost-reimbursable contracts allow the contractor to be reimbursed for allowable expenses as well as a predetermined fee or profit margin. This arrangement supports projects that may develop new requirements or need changes during execution, as it mitigates the risks associated with undefined scope.

In scenarios where project requirements are well-defined, a fixed-price contract might be more advantageous, as it establishes a clear cost upfront and provides predictability for budgeting. Similarly, if fixed costs are deemed more beneficial, that would suggest a preference for contracts that protect the project owner from unexpected fluctuations in expenses. A stable cash flow might also align better with a fixed-price contract, which locks in costs and can better accommodate straightforward budgeting and financial planning. Given these considerations, the uncertainty inherent in the project scope aligns well with the characteristics of a cost-reimbursable contract, thereby validating the choice of this option.