Cost-reimbursement incentive contracts
Cost-reimbursement incentive contracts must comply with both general cost-reimbursement rules and specific incentive contract requirements to ensure effective cost control and performance incentives.
Overview
FAR 16.405 addresses cost-reimbursement incentive contracts, which are designed to motivate contractors to control costs and achieve specific performance objectives. This section serves as a bridge, referencing general requirements for all cost-reimbursement contracts (see FAR 16.301) and introducing two main types of incentive contracts: cost-plus-incentive-fee (CPIF) and cost-plus-award-fee (CPAF). These contract types allow for reimbursement of allowable costs and provide additional incentives based on cost savings or performance achievements. FAR 16.405 emphasizes the need to comply with both the general cost-reimbursement rules and the specific requirements for each incentive contract type, which are detailed in the following subsections (16.405-1 and 16.405-2).
Key Rules
- Reference to General Requirements
- All cost-reimbursement incentive contracts must comply with the requirements in FAR 16.301.
- Types of Incentive Contracts
- Identifies and introduces CPIF and CPAF contracts, each with their own compliance requirements detailed in subsequent sections.
Responsibilities
- Contracting Officers: Must ensure contracts adhere to both general cost-reimbursement and specific incentive contract requirements.
- Contractors: Must understand the incentive structure and comply with cost and performance objectives.
- Agencies: Oversee contract compliance and ensure incentives are properly structured and administered.
Practical Implications
- This section ensures that incentive contracts are used appropriately and in compliance with both general and specific rules.
- It impacts how contractors manage costs and performance, and how agencies structure and monitor contracts.
- Common pitfalls include misunderstanding the incentive mechanisms or failing to comply with both general and specific requirements.