The contractor have incurred some cost overrun. The award fee amount is based on the percentage of total cost. Since the overrun increases the total cost of the contract, will the max award fee also increase?
In general, a cost overrun should not be rewarded by supplying the contractor with an increase in the maximum award fee (AF) earned. A cost overrun should reduce the maximum amount of AF they earn. FAR part 16 and the FAR reference below states that when the CPAF contract was awarded, a D&F should have been accomplished and an Award Fee Plan set in place to identify the base amount of AF the contractor could earn and the maximum amount they would potentially earn (the amount they could earn in whole or in part). For additional guidance, contact your program legal representative and the cognizant contracting officer.
16.405-2 -- Cost-Plus-Award-Fee Contracts.
A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (1) a base amount fixed at inception of the contract, if applicable and at the discretion of the contracting officer, and (2) an award amount that the contractor may earn in whole or in part during performance and that is sufficient to provide motivation for excellence in the areas of cost, schedule, and technical performance. See 16.401(e) for the requirements relative to utilizing this contract type.