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  • Question

    Could you provide a contract template, example contract, or at least references to pertinent contract clauses for a Cost Plus Incentive Fee (CPIF) contract? Thanks.


    Answer

    1. FAR Part 16.4 deals with incentive contracts. Please review FAR Part 16.401 concerning the policy on incentive contracts. A contractor can be incentivized in three areas; cost, performance, and delivery. Per FAR Part 16.402(a), if the contract has an incentive, cost is a mandatory incentive. That is, if you want to incentivize the contractor on delivery, then it is cost and delivery. If you want to incentivize the contractor on performance, then it is cost and performance. If you want to incentivize the contractor on performance and delivery, then it is cost, performance, and delivery.

    2. CON 270 spends almost two full days going over incentive contracts and specifically Cost-Plus-Incentive-Fee (CPIF) and Fixed-Price-Incentive-Firm (FPIF) contract types. CPIF contracts have a target cost (composed of the subtotal of all costs, plus G&A, plus facilities capital cost of money), target fee, a minimum fee and a maximum fee. The target cost and the target fee can be negotiated or can be determined in a competitive procurement. The target price is the target cost plus the target fee. These three items are listed in Section B of the contract. The minimum fee percentage and the maximum fee percentage is listed in the clause –
    52.216-10. The fee percentage is applied to target cost. Also, there are share ratios, which represent elements of risk. As the costs increase, the fee earned by the contractor decreases. As the costs decrease, the fee earned by the contractor increases. There are limits, maximum fee that the contractor can earned (no matter how low the costs go) and a minimum fee that the contractor earns (not matter how high the costs become). The maximum fee protects the government and the minimum fee protects the contractor. The cost range between the maximum fee is earned and the minimum fee starts, is the range of incentive effectiveness. This is the range in which the contractor is motivated, the contractor is incentivized.


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