So what do I track to ensure I do not go over the dollar threshold granted under the approved J&A? Do I track values for a CPIF by the target cost (plus) target fee, or do I track values by the Target Cost (plus) Max Fee? For FPIFs do I track the Target Price or the Ceiling Price? I did research this, and could not find a text book answer and did not find anything on DAU. I would think the higher value should be what we need to track as we could potentially obligate up to the Ceiling Price or Total Cost (plus) Max Fee. But again, I have experienced two different schools of thought on this topic. Therefore, I decided to ask.
This response is based on the information provided. We suggest you discuss with your contract administrator and/or legal department and the government contracting officer as appropriate.
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We suggest you discuss this with your financial team. It is important you are both tracking the same things. We do not know if all CLINs are under the CPIF contract type or not. The maximum and minimum fee is set in the contract as a percentage (FAR 52-216-10). For those CLINs that are under CPIF, you should keep the dollar value of the maximum which would cover the minimum amount. As an example:
Target cost: $1,000,000
Target fee: $50,000
Maximum Fee $70,000 (Max Fee 7%)
Minimum Fee $30,000 (Max Fee 3%)
You must keep $70,000 in reserve until the contractor has gone into an overrun situation to the extent you believe it will not recover to an underrun situation. At that point you would keep in reserve between $30,000 (minimum fee) and $50,000 (target fee). Whatever your J&A approved as the dollar threshold, we suggest you reserve your maximum fee with some pad and track costs to the remainder. Again, if your J&A approved $5,000,000 and your maximum fee was 8% ($400,000), we suggest you reserve $500,000 and ensure the contractor notifies you when it is nearing $4,500,000. If the contractor is overrunning then your reserve needs to be between the target fee and minimum fee.
For FPIF, your award the contract at the target price, but need to have budget available to cover the potential government obligation which is the ceiling price. Your ceiling price should not be higher than the J&A approved value because the government is obligated to pay up to the ceiling if the contractor overruns to that extent. The ceiling price does not come into play until you have exceeded the target price.
In both cases you track target cost and apply the appropriate formula to determine what the profit/fee is at that moment.