How is the fixed fee determined in a CPFF contract?

The fixed fee is negotiated between the government and the contractor before contract award. It is typically based on the complexity of the work, the level of effort required, and the contractor's expertise. The fee remains fixed regardless of actual costs incurred, unless the scope of work changes.

What is the government's incentive for using a CPFF contract?

CPFF contracts are appropriate when the scope of work is not well-defined at the outset, such as in research and development or complex service contracts. They allow the government to get the work started when other contract types might be too risky for contractors.

CPFF (Cost-Plus-Fixed-Fee) | GovCon Glossary

CPFF (Cost-Plus-Fixed-Fee)

What is CPFF (Cost-Plus-Fixed-Fee)?

A Cost-Plus-Fixed-Fee (CPFF) contract is a type of cost-reimbursement contract used by the U.S. government where the contractor is reimbursed for all allowable costs incurred in performing the contract work, up to a ceiling, plus a fixed fee. This fixed fee represents the contractor's profit.

Definition

CPFF contracts, as defined in FAR Part 16.301, are suitable when the government needs to obtain goods or services but cannot accurately define the scope of work or estimate costs at the time of contracting. The contractor is reimbursed for allowable costs as defined by FAR Part 31, which may include direct costs (labor, materials) and indirect costs (overhead). The 'fixed fee' portion is a predetermined amount, negotiated upfront, and is not adjusted based on the actual cost to the contractor. However, if the scope of work is significantly altered, the fixed fee may be renegotiated. CPFF contracts are subject to close scrutiny by the Defense Contract Audit Agency (DCAA) and the contracting officer (CO) to ensure that only allowable costs are reimbursed.

Key Points

Cost Reimbursement: The contractor is reimbursed for all allowable costs directly and indirectly related to the contract's performance.
Fixed Fee Profit: The fixed fee is negotiated upfront and provides the contractor with a guaranteed profit, independent of cost fluctuations within the original scope.
FAR Compliance: CPFF contracts must adhere to the Federal Acquisition Regulation (FAR) Part 16 and Part 31 concerning cost allowability and contract management.
Government Oversight: These contracts require significant government oversight and auditing to ensure cost control and prevent waste, fraud, and abuse.

Practical Examples

Research and Development Project: A government agency contracts with a research firm to develop a new technology. Due to the uncertain nature of R&D, a CPFF contract is used to allow flexibility and ensure the firm is compensated for its efforts, regardless of whether the technology is successfully developed.
Complex IT System Implementation: A federal agency needs to implement a new, complex IT system, but the full requirements and potential challenges are not fully understood. A CPFF contract enables the agency to proceed while mitigating the contractor's risk associated with unforeseen issues.
Advisory and Assistance Services: A government organization needs expert advice in a specialized field but cannot precisely define the scope of work or level of effort required. A CPFF contract allows them to engage consultants and pay for the time and expenses incurred while ensuring a reasonable profit for the consultancy.

Frequently Asked Questions

CPFF contracts provide reimbursement for allowable costs incurred in performance, reducing the contractor's risk. Additionally, the fixed fee provides a guaranteed profit margin regardless of unforeseen cost increases, as long as those costs are deemed allowable.