Cost Contract-No Fee
FAR 52.216-11 ensures contractors are reimbursed only for allowable costs with no fee, and allows the government to withhold a reserve to protect its interests near contract completion.
Overview
FAR 52.216-11, "Cost Contract-No Fee," is a clause used in cost-reimbursement contracts where the contractor is not paid a fee and the contract is not a cost-sharing agreement. This clause is typically inserted when the government wants to reimburse allowable costs only, without any profit or fee to the contractor. It also establishes a mechanism for the Contracting Officer to withhold a portion of allowable costs after 80% of the estimated contract cost has been paid, to protect the government’s interests. For nonprofit organizations, the maximum reserve may be reduced from $100,000 to $10,000. An alternate version allows for deletion of the withholding provision in certain research and development contracts with educational or nonprofit institutions if the Contracting Officer determines withholding is unnecessary.
Key Rules
- No Fee Payment
- The contractor will not receive any fee for performing the contract; only allowable costs will be reimbursed.
- Withholding of Allowable Costs
- After 80% of the estimated cost is paid, the Contracting Officer may withhold further payments to establish a reserve (up to 1% of the estimated cost or $100,000, whichever is less; $10,000 for nonprofits).
- Alternate I for Nonprofits/Educational Institutions
- For certain R&D contracts with nonprofits or educational institutions, the withholding provision can be omitted if deemed unnecessary by the Contracting Officer.
Responsibilities
- Contracting Officers: Must insert this clause in applicable contracts, determine if withholding is necessary, and set appropriate reserve amounts. For nonprofits, may adjust the reserve limit or use Alternate I.
- Contractors: Must comply with the no-fee provision and be aware of potential withholding of allowable costs as specified.
- Agencies: Ensure proper clause usage and oversight of payment withholdings.
Practical Implications
- This clause ensures contractors are reimbursed only for costs, with no profit, and protects the government by allowing withholding of funds near contract completion. Contractors should plan for potential cash flow impacts due to withheld payments. Nonprofits and educational institutions may benefit from reduced or eliminated withholding, easing administrative burden.