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  • Question

    Where does it state that what costs profit/fee can be applied?


    Answer

    See FAR 16.306(a) for a general description of CPFF. See FAR 16.306(d) for a description of the completion and term forms. In general, under a CPFF contract type the negotiated fee amount is fixed at award and does not vary with actual cost incurrence "but may be adjusted as a result of changes in the work to be performed under the contract."
     
    See FAR 15.404-4 for guidance on negotiating profit. Note FAR 15.404-4(c)(3) states the contracting officer "shall use the Government prenegotiation cost objective amounts as the basis for calculating the profit or fee objective." This section then goes on to require exclusion of some costs before applying profit or fee: directly-charged contractor-acquired equipment and facilities capital cost of money. FAR 15.404-4 does not otherwise specifically exclude profit or fee on specific costs. FAR 15.404-4(c)(4) does limit the profit percentage that you may negotiate for CPFF contract types.
     
    If you were negotiating a time-and-materials contract, no profit or fee would be paid for "materials", which, as defined in FAR 16.601(a), includes direct materials, supplies and incidental services, ODCs, and applicable indirect costs. See FAR 16.601(b).

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