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    Does the addition of a schedule incentive (4%) to a CPFF CLIN violate the maximum fixed fee amounts set by 10 USC 2306(d) when the CPFF CLIN already has a 10% fixed fee built in? Does the fact that this is an incentive fee on the CPFF CLIN remove it from the statutory restriction and thus not exceed the maximum Fixed Fee? Thank you very much for your time!!


    Answer

    The following response is based solely on the question and background information provided.  As we do not have all the facts particular to your contract, program, and situation, we highly recommend, as applicable, you consult your leadership, contracting officer and/or Legal Office for guidance.
     
    Your question raises interesting issues in relation to the statutory prohibitions at 10 USC Code § 2306 and  FAR 15.404-4(c)(4)(i) in which Contracting officers are not permitted to negotiate a price or fee that exceeds designated limitations (i.e., 15% for experimental, developmental, or research work on CPFF contracts, 10% for other CPFF contracts).  The statutory language and its corresponding FAR language specifically relate the limitations to "fee"  as a percentage of the estimated cost under a CPFF arrangement.  The answer to your question, therefore, hinges on the term "fee."  If performance or schedule incentive dollars are part of the overall contract fee structure, then we are left to conclude that the performance or schedule incentive dollars when combined with the fixed fee amount, are both considered when determining whether the limitation is exceeded.  It's important to note that FAR 15.404-4(c)(4)(i) specifically requires that the restrictive percentages are applied to the "contract's estimated cost, excluding fee" making clear the basis upon which the fee percentage is derived.
     
    While the FAR or DFARS is not specific as to the definition of fee, the DOD contract pricing reference guide defines  "profit/fee"  as " the dollar amount over and above allowable costs paid to the contractor to motivate contractor performance. Together contract cost and contract profit/fee total contract price."  This definition indicates that any monetary value apart from allowable costs  should be considered profit/fee.  As it relates to incentive contracts, the CPRG "fee" definition is consistent with FAR 16.401 which states that incentive contracts relate " the amount of profit or fee payable under the contract to the contractor's performance."  Further, FAR 16.401(b) stipulates that "when predetermined, formula-type incentives on technical performance or delivery are included, increases in profit or fee are provided only for achievement that surpasses the targets, and decreases are provided for to the extent that such targets are not met." 

    You state in your background that "10 USC 2306(d) only states that the 10% maximum fee is for fixed fee on CPFF contracts."  Actually, the statutory  language states "the fee for performing any other cost-plus-a-fixed-fee contract ..." and, thus, isolates the term "fee" from the overall contract type designation. The FAR clearly relates the term "fee" to the dollar amounts associated with a performance or delivery incentive, and, therefore, it should be included in the calculation to determine whether the  statutory fee limitations at FAR 15.404-4(c)(4)(i) are exceeded. 

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