Overview
FAR 16.406 prescribes the specific contract clauses required for different types of incentive and award-fee contracts. It ensures that the legal framework for price revisions, cost reimbursements, and fee determinations is properly integrated into the solicitation and resulting contract.
Key Rules
- Fixed-Price Incentive Contracts:
- Use 52.216-16 for Firm Target arrangements.
- Use 52.216-17 for Successive Targets arrangements.
- In both cases, Alternate I must be used if the contract includes provisioning documents or Government options subject to incentive price revision.
- Cost-Reimbursement Incentive Contracts:
- 52.216-7 (Allowable Cost and Payment) is mandatory for both Cost-Plus-Incentive-Fee (CPIF) and Cost-Plus-Award-Fee (CPAF) contracts.
- 52.216-10 (Incentive Fee) is specifically required for CPIF contracts.
- Award-Fee Requirements: For any award-fee contract, the clause used must be agency-approved, compatible with cost-payment clauses, and explicitly state that the award-fee amount and methodology are unilateral decisions made at the sole discretion of the Government.
Practical Implications
- Automated Compliance: Contracting officers must ensure the correct "Alternate" version of price revision clauses is selected when options are present to avoid disputes during price redetermination.
- Discretionary Power: The requirement for award-fee clauses to be "unilateral" protects the Government’s right to determine performance rewards without being subject to the standard Disputes clause regarding the specific fee amount granted.