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  • Question

    Is the Agency required to reimburse the Contractor for work above contract requirements. The Contractor claims the additional hours were tasks directly related to the requirements. The Contractor exceeded those estimates at its own risk without the approval of the contracting officer. Since this is a CPIF is the Gov't required to reimburse the Contractor.


    Answer

    Under a CPIF arrangement, the increase or decrease of actual costs in relation to the negotiated target cost, along with the associated share ratio, is intended to provide an incentive for the contractor to manage the contract effectively. The collective bargaining agreement (CBA) and re-competed work apparently resulted in higher costs. However, the essence of the CPIF structure is that the sharing arrangement already provides for unanticipated increases and decreases in actual costs compared to the original, negotiated target cost. If adjustments are routinely made for actual costs that exceed expectations, that defeats the purpose of the CPIF arrangement. Otherwise, a CPFF contract type would have been more appropriate. On the other hand, if the government adds scope to the contract, the target cost needs to be renegotiated to address the associated increase. Of course if there is a contract term that specifically provides for an adjustment in the target cost for the CBA or re-competed work, then would need to be separately addressed. Otherwise, while there may a "combination of reasons" for some CLINs to experience higher actual costs, it's the job of the contracting officer to isolate--as best he/she can--the increased costs due to the increased scope and negotiate increased target costs accordingly.

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