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    CPIF with 0/100 share ratio for Overruns - In the absence of any other special clause which contains a "cap" on total costs, can you confirm that a CPIF contract with a 0/100 share ratio on the overrun side essentially becomes a CPFF contract to the right of the min fee point? Meaning, the 0/100 share (FFP arrangement) is only operable from the point of target cost/fee to the point of min fee (in this case 0) and that the gov't will continue to pay the total cost once the Contractor reaches the TC associated with min fee? It is my assumption that the Contractor in an overrun situation can only lose their total fee and that the government will ALWAYS pay the total cost bill unless the min fee is negative.


    Answer

    Under a CPIF Contract with a share ratio of 0/100, the contractor is responsible for 100% of the cost over-run.  Per FAR Part 16.405-1(a), after contract performance, the fee payable to the contractor is determined IAW the fee adjustment formula.  Once all costs are in, the fee adjustment formula would be applied. The formula in this case would provide for a decrease in fee below the target fee because the total allowable costs exceeded the target cost.  When total allowable cost is greater than the range of costs within which the fee adjustment formula operates, the contractor is paid total allowable costs, plus minimum fee. 

    The key word here is allowable. The government is required to pay contractor's allowable, audited, actual costs plus minimum fee.  So under a CPIF with a share of 0/100, one can look at the point where the contractor is being paid a minimum fee (assuming it is not zero or negative) as the CPIF Contract becoming a CPFF Contract in the sense that the fee is fixed at the minimum fee amount.  However, under a true CPFF contract the fee is not tied to cost performance (as it is with CPIF) but is earned only for "performing the contract" - which means delivering the specified end product for completion form or delivering the required hours for term form.  (See
    FAR 16.306(d).) 
     
    What one should realize and perhaps consider is whether or not a CPIF Contract is the proper contract type selection (FAR Part 16.104 -- Factors in selecting contract type) given the circumstances?  FAR Part 16. 405-1(b) spells out when a CPIF Contract is applicable.  FAR Part 16.405-1(b)(3) specifically states that the fee adjustment formula should provide an incentive that will be effective over the full range (range of incentive effectiveness) of reasonably foreseeable variations from target cost.  It further states that if a high maximum fee is negotiated, the contract shall also provide for a low minimum fee that may be zero or, in rare cases a negative fee. This last reference answers the latter part of your question (assumption) regarding what the government always pays.  Since we do not have all of the facts particular to your contract, program, and situation, we highly recommend that you consult with your KO/CO and Legal  Office for further guidance. 

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