What is the cash flow risk characteristic of Cost Reimbursement Contracts?

Cost reimbursement contracts are characterized by the payment of allowable costs incurred by the contractor during the performance of the contract. This structure means that the contractor is reimbursed for expenses as they occur—essentially, cash flows are received on an "as incurred" basis.

This characteristic is significant because it affects the contractor's cash flow management. The contractor does not have to wait for milestones to be achieved or for the final delivery of goods or services to receive payment. Instead, they can recover costs immediately as they are spent, which can help maintain liquidity and operational stability throughout the project lifecycle.

In contrast, the other options refer to payment structures that are typical in different types of contracts—milestones and delivery are often associated with fixed-price contracts, where payment is contingent on achieving specific project milestones or upon the delivery of the product or service, rather than as costs are incurred. Understanding the cash flow dynamics of cost reimbursement contracts is crucial for effective financial planning and management in contracting scenarios.