Overview
This section defines the rules for two types of cost-reimbursement incentive contracts—Cost-Plus-Incentive-Fee (CPIF) and Cost-Plus-Award-Fee (CPAF)—which are designed to motivate contractor performance through financial adjustments based on cost, schedule, or technical achievements.
Key Rules
- CPIF Formulaic Adjustments: Cost-plus-incentive-fee contracts must specify a target cost, target fee, and a fee adjustment formula that increases or decreases the fee based on the relationship of allowable costs to target costs.
- CPIF Fee Limits: Contracts must establish a minimum and maximum fee; if a high maximum fee is negotiated, the minimum fee must be low (potentially zero or, rarely, negative).
- Technical Performance Incentives: These may be included in CPIF contracts if it is highly probable that development is feasible and the government has clear performance objectives.
- CPAF Components: Cost-plus-award-fee contracts consist of an optional fixed base fee and an award amount earned through performance excellence in cost, schedule, and technical areas.
- Regulatory Compliance: Both contract types must comply with the general requirements for all cost-reimbursement contracts as found in FAR 16.301.
Practical Implications
- Risk Sharing: These vehicles shift financial risk to the contractor by making a portion of the profit contingent on efficiency, providing a middle ground between the high contractor risk of Fixed-Price and the high government risk of Cost-Plus-Fixed-Fee.
- Administrative Burden: Agencies must be prepared for the increased administrative effort required to manage fee adjustment formulas (CPIF) or conduct subjective performance evaluations (CPAF).
- Strategic Selection: CPIF is best utilized when cost and performance targets are objectively measurable, whereas CPAF is preferred for complex acquisitions where "excellence" involves qualitative factors that a formula cannot easily capture.