16.402
Application of predetermined, formula-type incentives
FAR 16.402 ensures that predetermined, formula-type incentives are clearly structured to motivate contractors toward cost, performance, and delivery goals without creating conflicting objectives.
Overview
FAR 16.402 addresses the application of predetermined, formula-type incentives in government contracts. This section outlines how incentives based on cost, performance, and delivery can be structured to motivate contractors to achieve specific objectives. The regulation provides guidance on when and how to use these incentives, ensuring that contract terms are clear, measurable, and aligned with government goals. It also covers the structuring of contracts that include multiple incentive types, emphasizing the need for balance and clarity to avoid conflicting motivations.
Key Rules
- Cost Incentives
- Incentives tied to cost savings or underruns, encouraging contractors to control expenses.
- Performance Incentives
- Rewards for exceeding specified performance standards or technical requirements.
- Delivery Incentives
- Incentives for meeting or beating delivery schedules.
- Multiple-Incentive Contracts
- Guidance on structuring contracts with more than one type of incentive, ensuring objectives are not in conflict.
Responsibilities
- Contracting Officers: Must determine appropriate incentive types, structure formulas, and ensure contract clarity.
- Contractors: Must understand incentive structures and perform to maximize rewards.
- Agencies: Oversee contract execution and ensure incentives align with program objectives.
Practical Implications
- This section ensures that incentives are used strategically to drive contractor behavior toward government priorities.
- Proper application can improve cost control, performance, and timely delivery.
- Poorly structured incentives can lead to confusion or unintended outcomes, so clarity and alignment are critical.