Overview
This section defines cost-plus-award-fee (CPAF) contracts as cost-reimbursement agreements where the fee is split into a fixed base amount and a subjective award amount intended to incentivize superior performance. It serves as a pointer to more detailed regulations found in FAR Subpart 16.4 regarding incentive contracts.
Key Rules
- Fee Structure: The fee must consist of a base amount (which is fixed at the contract's inception and can be zero) and an award amount.
- Subjective Evaluation: Unlike objective incentive fees, the award amount is determined by the government’s "judgmental evaluation" of the contractor’s performance.
- Purpose: The primary goal of the award fee is to provide sufficient motivation for the contractor to achieve excellence.
- Regulatory Governance: Detailed application rules and descriptions are located in FAR 16.401(e), while limitations are governed by FAR 16.301-3 and 16.401(e)(5).
Practical Implications
- CPAF contracts are typically used when the government's requirements are complex and performance cannot be easily measured by objective technical or cost milestones.
- Contractors must prepare for a rigorous and subjective evaluation process, while the government must dedicate significant administrative resources to conduct formal award fee boards and performance assessments.