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  • Question

    1. CPIF provides a low minimum fee that may be a zero fee or, in rare cases, a negative fee. What consistutes the "rare cases" where negative fee is used? 2. Does negative fee constitute contract augmentation? If not, why not? Thanks


    Answer

    We are not familiar with the term “negative fee” in relation to contract types authorized under the FAR.  The term “negative fee” seems to imply a fee of less than zero, suggesting the contractor would pay the government.  While negative performance incentives may be applied in appropriate circumstances, these would not result in a “negative fee.”
     

    Under the cost reimbursement contract type (including CPIF), the contractor may indeed earn no fee (zero fee).  However, by definition the government will still pay all allowable costs.  The contractor earns no fee, but will not lose money out-of-pocket because their allowable costs are reimbursed.
     

    Contrast this concept with the fixed-price contract type in which the government pays only the agreed, contracted price.  As the contractor’s costs increase toward the contracted price, the amount of realized profit decreases to zero.  If costs exceed the price, the contractor is in a loss scenario, receiving no profit and paying out-of-pocket any costs incurred above the contracted price.
     


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