Cost realism analysis is typically required on which contracts?

• A. Cost-reimbursement and other non-fixed-price contracts
• B. Non-fixed-price contracts only
• C. Fixed-price contracts only
• D. Cost-reimbursement and other non-fixed-price contracts

Answer: (D)

Cost realism analysis looks at whether the costs proposed by the bidder are realistic for actually performing the work under the contract. This is most important when the contract does not fix the price in advance, so there is a genuine risk that proposed costs could be too high or too low relative to what’s needed.

Therefore, it’s typically required for cost-reimbursement contracts and other non-fixed-price arrangements (such as time-and-materials or labor-hour contracts) where payments depend on incurred costs. In fixed-price contracts, the price is set upfront and the contractor bears the cost risk, so a cost realism analysis is not the standard requirement (unless there are unusual circumstances suggesting a need to review price realism).