Overview
This section defines the cost-plus-incentive-fee (CPIF) contract as a cost-reimbursement vehicle where the contractor's fee is adjusted based on a formula comparing actual allowable costs to target costs. It serves as a regulatory bridge, directing users to Subpart 16.4 for application details and 16.301-3 for mandatory limitations.
Key Rules
- Classification: It is formally categorized as a type of cost-reimbursement contract.
- Fee Adjustment Mechanism: The contract provides for an initially negotiated fee that is modified later via a formula.
- Basis of Adjustment: The fee adjustment is strictly based on the relationship between total allowable costs and the pre-established total target costs.
- Regulatory Cross-References:
- Detailed descriptions and applications are found in FAR 16.405-1.
- Use of this contract type is subject to the general limitations for cost-reimbursement contracts outlined in FAR 16.301-3.
Practical Implications
- Risk Sharing: This structure motivates contractors to manage costs effectively because their profit increases if costs are below target and decreases if costs exceed target.
- Administrative Requirement: Agencies must have the administrative capacity to negotiate complex incentive formulas and audit final allowable costs to determine the appropriate fee adjustment.