Which contract type requires that costs must be allowable, allocable, and reasonable?

The requirement that costs must be allowable, allocable, and reasonable is fundamentally tied to cost-reimbursement contracts. In these types of contracts, the government agrees to reimburse the contractor for their allowable costs incurred in performing the contract. This means that only costs that meet specific criteria can be charged to the contract.

• Allowable costs are those that conform to the terms of the contract and comply with the applicable cost principles as outlined in regulations.
• Allocable costs can be directly attributed to a particular contract or project, ensuring that the expenses are directly connected to the work being performed.
• Reasonable costs are those that a prudent person would expect to incur in a similar situation, taking into account the nature of the costs, market conditions, and other relevant factors.

This framework is crucial for the fair and transparent use of public funds and ensures that government spending is justified. Other contract types, while they may have some cost-related considerations, do not share this same stringent requirement for cost structure verification in the same way that cost-reimbursement contracts do.