Certified Professional Public Buyer (CPPB) Practice Test

What defines allowable costs within a contract?

1. The cost must be reasonable

2. The cost must be for work within contract terms

3. Both the cost must be reasonable and for work within contract terms

4. Only costs incurred after contract award

The correct answer is: Both the cost must be reasonable and for work within contract terms

Allowable costs within a contract are defined by two primary criteria: the costs must be reasonable and they must be for work that falls within the specified terms of the contract. Cost reasonableness is judged based on whether the costs are consistent with what a prudent person would incur in a similar situation. This involves analyzing the nature of the costs and ensuring they align with the expectations for efficiency and need. Additionally, for costs to be allowable, they must pertain directly to the work specified in the contract. This means that any expenditures must relate directly to the contractual obligations and deliverables stated within that particular agreement. Thus, to determine the allowance of costs, it is essential that both conditions are satisfied: they must be reasonable, and they must correspond to activities outlined in the contract. This comprehensive understanding is crucial for public buyers to ensure compliance and appropriate use of funds.