16.304
Cost-plus-incentive-fee contracts
Cost-plus-incentive-fee contracts tie a contractor's fee to cost performance, requiring careful cost tracking and understanding of incentive formulas.
Overview
- FAR 16.304 defines cost-plus-incentive-fee (CPIF) contracts as a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs and paid an incentive fee that is adjusted based on the relationship between actual costs and target costs. The section references Subpart 16.4 for broader incentive contract rules and 16.405-1 for detailed application guidance, as well as 16.301-3 for limitations on use.
Key Rules
- Definition of CPIF Contracts
- CPIF contracts reimburse allowable costs and provide an incentive fee that can be adjusted according to a pre-negotiated formula based on cost performance.
- Reference to Additional Guidance
- Contractors and contracting officers must consult Subpart 16.4 and 16.405-1 for detailed rules and application, and 16.301-3 for limitations on use.
Responsibilities
- Contracting Officers: Must ensure proper contract structure, apply the incentive formula, and comply with referenced sections for use and limitations.
- Contractors: Must track and report allowable costs accurately and understand how their cost performance affects the incentive fee.
- Agencies: Must oversee contract compliance and ensure incentive structures align with agency objectives.
Practical Implications
- This section establishes the framework for using CPIF contracts, which are designed to motivate cost efficiency while reimbursing actual costs. Contractors must be diligent in cost tracking and understand how their performance impacts their fee. Misunderstanding the incentive structure or failing to comply with referenced requirements can lead to disputes or loss of fee.