52.216-10
Incentive Fee
FAR 52.216-10 ties contractor incentive fees directly to cost performance, with strict rules for fee calculation, withholding, and required documentation to ensure government interests are protected.
Overview
FAR 52.216-10, Incentive Fee, establishes the rules for determining and paying incentive fees under cost-plus-incentive-fee (CPIF) contracts. The clause outlines how the target cost and target fee are set and adjusted, the process for withholding and releasing portions of the fee, and the calculation of the final fee based on actual costs versus target costs. It also details circumstances under which equitable adjustments are made, exceptions to allowable costs for fee calculation, and the procedures for contract modification and resolving inconsistencies. The clause is designed to motivate contractors to control costs and improve performance by linking fee payments to cost outcomes.
Key Rules
- Target Cost and Fee Adjustments
- Target cost and fee are set at contract award and may be adjusted for contract modifications or equitable adjustments.
- Withholding of Fee
- The Government may withhold up to 15% or $100,000 of the incentive fee to protect its interests, with partial release upon submission of required final cost proposals and reports.
- Fee Calculation
- The final fee is adjusted up or down based on actual allowable costs compared to the target cost, within specified minimum and maximum limits.
- Exclusions from Allowable Costs
- Certain costs (e.g., excusable delays, new taxes, litigation, additional insurance, indemnified risks) are excluded from the fee adjustment calculation.
- Contract Modification
- Adjusted costs and fees must be documented in a contract modification signed by both parties.
- Resolution of Inconsistencies
- This clause governs in case of inconsistencies with provisioning documents or options.
Responsibilities
- Contracting Officers: Set and adjust target costs/fees, withhold/release fees, approve equitable adjustments, and execute contract modifications.
- Contractors: Submit certified final indirect cost rate proposals, final patent and royalty reports, and comply with all contract terms to receive withheld fees.
- Agencies: Ensure oversight of fee calculations, withholdings, and equitable adjustments.
Practical Implications
- This clause incentivizes contractors to control costs and improve efficiency by tying fee payments to cost performance.
- Contractors must maintain accurate cost records and timely submit required documentation to avoid delays in fee payments.
- Misunderstanding allowable cost exclusions or failing to meet reporting requirements can result in reduced or withheld fees.