Structuring multiple-incentive contracts
Multiple-incentive contracts must balance incentives across cost, technical, and delivery goals, always including a cost incentive to prevent excessive spending for marginal performance gains.
Overview
FAR 16.402-4 addresses how to structure contracts that include multiple incentive elements, such as cost, technical performance, and delivery. The regulation emphasizes that these contracts should motivate contractors to excel in all incentivized areas, not just one. It also requires that the contract structure compels contractors to make trade-offs among incentive areas in line with the Government’s overall acquisition objectives. Importantly, every multiple-incentive contract must include a cost incentive (or constraint) to ensure that superior performance in technical or delivery areas does not result in excessive costs that outweigh the benefits to the Government. This prevents the contractor from being rewarded for performance that is not cost-effective.