16.405-2 Cost-plus-award-fee contracts
Source: FAR 16.405-2 on acquisition.gov
Cost-plus-award-fee contracts motivate contractors to achieve superior performance by tying a portion of their fee to how well they meet cost, schedule, and technical goals.
Overview
A cost-plus-award-fee (CPAF) contract is a type of cost-reimbursement contract designed to incentivize contractors to achieve excellence in cost control, schedule adherence, and technical performance. Under this contract, the contractor is eligible for a fee that includes a base amount (which may be set at the contracting officer's discretion) and an award amount that is earned based on performance during contract execution. The award fee is intended to motivate superior results and is determined by the government based on how well the contractor meets established criteria. Contracting officers must refer to FAR 16.401(e) for specific requirements when considering the use of this contract type.
Key Rules
- Base and Award Fee Structure
- The contract may include a fixed base fee and an award fee, with the latter earned based on performance.
- Performance Motivation
- The award fee is structured to incentivize excellence in cost, schedule, and technical performance.
- Contracting Officer Discretion
- The base fee is optional and set at the contracting officer's discretion.
- Reference to Additional Requirements
- Contracting officers must consult FAR 16.401(e) for further requirements on using CPAF contracts.
Responsibilities
- Contracting Officers: Decide on the inclusion and amount of the base fee, structure the award fee to motivate performance, and ensure compliance with FAR 16.401(e).
- Contractors: Strive to meet or exceed performance criteria to maximize the award fee.
- Agencies: Oversee the proper use and administration of CPAF contracts and ensure performance evaluation processes are in place.
Practical Implications
- CPAF contracts are used when it is difficult to objectively measure performance but motivation for excellence is needed.
- Contractors must focus on meeting performance metrics to earn the award fee.
- Common pitfalls include unclear performance criteria or inadequate documentation of award fee determinations.
A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (1) a base amount fixed at inception of the contract, if applicable and at the discretion of the contracting officer, and (2) an award amount that the contractor may earn in whole or in part during performance and that is sufficient to provide motivation for excellence in the areas of cost, schedule, and technical performance. See 16.401(e) for the requirements relative to utilizing this contract type.