Overview
FAR 16.306 defines cost-plus-fixed-fee (CPFF) contracts as cost-reimbursement agreements where the contractor receives a predetermined fee established at the time of contract award. This contract type is designed for high-risk efforts, such as research and development, where the scope of work cannot be defined with enough certainty to use incentive or fixed-price arrangements.
Key Rules
- Fixed Fee Nature: The fee is a set dollar amount that does not fluctuate based on actual costs incurred, though it may be adjusted if the Government changes the scope of work.
- Suitability: CPFF is appropriate for research, preliminary exploration, or development tasks where the level of effort is unknown or cost-plus-incentive-fee contracts are impractical.
- Statutory Limitations: Contracts must comply with mandatory fee ceilings (e.g., 10% for most contracts, 15% for R&D) as referenced in FAR 15.404-4.
- Completion Form: This preferred form requires the contractor to deliver a specific end product (e.g., a final report) to receive the full fee. If the estimated cost is reached before completion, the Government can provide more funds, but the fee remains the same.
- Term Form: This form obligates the contractor to provide a specific level of effort for a specific period. The fee is paid once the agreed-upon effort has been expended and the time period has expired.
- Restrictions on Major Systems: CPFF should generally not be used for major systems once the technical risks have been reduced and performance objectives are firmly established.
Practical Implications
- Risk Allocation: The Government assumes the highest cost risk in a CPFF environment because the contractor has a minimal incentive to control costs, as their profit is guaranteed regardless of efficiency.
- Administrative Oversight: Because there is little financial incentive for the contractor to manage costs, the Government must perform intensive monitoring of contractor performance and cost expenditures to ensure effective use of resources.