16.306
Cost-plus-fixed-fee contracts
Cost-plus-fixed-fee contracts are best used for high-risk, uncertain efforts where costs can't be accurately estimated, but require strict compliance with FAR limitations and careful contract form selection.
Overview
- FAR 16.306 defines cost-plus-fixed-fee (CPFF) contracts, a type of cost-reimbursement contract where the contractor is paid allowable costs plus a negotiated fixed fee set at contract inception. The fixed fee does not change with actual costs but may be adjusted for changes in work scope. This contract type is used when contract risks are high and costs are difficult to estimate, such as in research, preliminary studies, or certain development and test efforts.
Key Rules
- Description and Fee Structure
- CPFF contracts pay a fixed fee regardless of actual costs, providing minimal incentive for cost control but allowing contractors to accept higher-risk work.
- Appropriate Use Cases
- Suitable for research, preliminary exploration, or development/testing when requirements are uncertain and cost-plus-incentive-fee contracts are impractical.
- Limitations
- CPFF contracts must comply with limitations in FAR 15.404-4(c)(4)(i) and 16.301-3, and are generally discouraged for major system development after feasibility is established.
- Contract Forms
- Two forms: Completion (preferred when work can be clearly defined) and Term (used when only level of effort and time can be specified). The term form requires a specific level of effort within a set period.
Responsibilities
- Contracting Officers: Ensure proper application, compliance with limitations, and selection of the appropriate contract form. Must justify use and document compliance with referenced FAR sections.
- Contractors: Must perform work as specified (completion or term), track costs, and provide required statements or deliverables for fee payment.
- Agencies: Oversee contract execution, ensure compliance, and monitor performance and cost control.
Practical Implications
- CPFF contracts are vital for high-risk, uncertain projects but offer little cost-control incentive. Proper justification and documentation are critical. Misapplication or poor contract form selection can lead to cost overruns or compliance issues.