What are "incurred costs" in a contract?

Incurred costs in a contract refer specifically to the expenses that a contractor has already incurred as they fulfill their contractual obligations. These costs represent actual spending that has happened in the course of executing the contract work, and they are typically tracked meticulously because they can directly impact billing and reimbursement processes under the contract.

This definition aligns with standard accounting and contracting practices, where incurred costs are typically those that have been realized and documented, forming the basis for claims for payment. Understanding incurred costs is crucial for a Contracting Officer's Representative (COR) because it helps in monitoring contractor performance and ensuring that the costs align with the terms of the contract.

On the other hand, projected future expenses pertain to anticipated costs that may or may not occur, financial activities related to estimating bids involve potential costs and planning rather than actualized expenses, and costs associated with contract termination involve specific expenses related to ending a contract, rather than the general costs incurred during performance. Therefore, the most accurate embodiment of "incurred costs" is described in the correct answer.