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    1) Do FAR 52.216-10 and 52.216-16 already allow for such an accumulated final cost approach, or will additional clauses be necessary to properly implement an incentive fee or profit payable based on accumulated final costs for all orders issued against the incentive line item annually. 2) Would the additional clause be considered a deviation from the FAR clauses?


    Answer

    As written, neither FAR 52.216-10 nor 52.216-16 address an accumulated final cost approach. Without knowing all the details of your particular proposed application, lets outline an application of how this approach could be utilized. In this scenario, you negotiate an incentive contract where for the year you have a target cost of $100M, and a range of incentive effectiveness(RIE) (or range of cost sharing(RCS), depending on the type of incentive contract) between $75M and $125M. You expect that your accumulated effort for the year will hit in this range. Due to budget constraints, or the availability of other options, the accumulated task orders for the year amount to $25M. Now, just because of the lack of orders, the contractor will receive the maximum profit/fee because you are well below the RIE/RCS. In this scenario, the contractor is not being rewarded for his performance, but rather the lack of work available to him.
     
    Since incentives are designed to reward a contractor for their efforts, use them for this purpose. By incentivizing each order independently, you can set order specific targets for the contractor to achieve to earn the incentive and in-turn utilize incentives on your effort as they are intended. Another reason to not accumulate the incentives, is that you can in-turn allow a contractor to 'cherry pick' his efforts toward those orders which will return the greatest reward for the least effort. This works out well for those orders, but at the possible detriment to those orders that the effort is higher for a smaller incentive opportunity.

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