Use When.. An objective Objective incentive Relating fee to No other type of The contractor relationship can be targets are not feasible performance contract is suitable expects established between for critical aspects of (e.g., to actual (e.g., because costs substantial the fee and such performance. costs) would are too low to justify compensating measures of Judgmental standards be unworkable an audit of the benefits for performance as actual can be fairly applied.1 or of marginal contractor's indirect absorbing part of costs, delivery dates, Potential fee would utility. expenses). the costs and/or performance provide a meaningful foregoing fee or benchmarks, and the incentive. The vendor is a like. non-profit entity Elements Target cost Target cost Target cost A ceiling cost Performance Standards for If CS, an targets evaluating Fixed agreement on A per-hour (optional) performance fee the labor rate Government's that also A minimum, A base and share of the covers maximum, maximum fee cost. overhead and target Procedures for and profit fee No fee adjusting fee, Provisions A formula for on for adjusting fee performance reimbursing based on against the direct actual costs standards material and/or costs performance Contractor is Obliged to: Make a good faith effort to meet the Government's needs within the estimated cost in the Make a good faith Schedule. effort to meet the Government's needs within the ceiling price. Contractor Incentive Realizes a higher fee Realizes a higher fee Realizes a If CS, shares in the cost of (other than maximizing by completing the by meeting higher rate of providing a deliverable of goodwill)1 work at a cost judgmental return (i.e., fee mutual benefit and/or by meeting performance divided by total other objective standards. cost) as total performance targets. cost decreases. Typical Application Research and Large scale research Research study Joint research with Emergency repairs to development of the study. educational institutions. heating plants and prototype for a major aircraft engines. system. Principal Limitations in The contractor must have an adequate accounting system. The Government must rates must be FAR Parts 16, 32, 35, and exercise surveillance during performance to ensure use of efficient methods and cost negotiated. MUST be 52 controls. Must be negotiated. Must be justified. Statutory and regulatory limits on the justified. The fees that may be negotiated. Must include the applicable Limitation of Cost clause at FAR Government MUST 52.232-20 through 23. exercise appropriate surveillance to ensure efficient performance. Completion or Labor Hour (LH) Variants Term.
Use When.. An objective relationship can be established between the fee and such measures of performance as actual costs, delivery dates, performance benchmarks, and the like. Objective incentive targets are not feasible for critical aspects of performance. Judgmental standards can be fairly applied.1 Potential fee would provide a meaningful incentive. Relating fee to performance (e.g., to actual costs) would be unworkable or of marginal utility. The contractor expects substantial compensating benefits for absorbing part of the costs and/or foregoing fee or The vendor is a non-profit entity No other type of contract is suitable (e.g., because costs are too low to justify an audit of the contractor's indirect expenses). Elements Target cost Performance targets (optional) A minimum, maximum, and target fee A formula for adjusting fee based on actual costs and/or performance Target cost Standards for evaluating performance A base and maximum fee Procedures for adjusting fee, on performance against the standards cost Fixed fee Target cost If CS, an agreement on the Government's share of the cost. No fee A ceiling A per-hour labor rate that also covers overhead and profit Provisions for reimbursing direct material costs Contractor is Obliged to: Make a good faith effort to meet the Government's needs within the estimated cost in the Schedule. Make a good faith effort to meet the Government's needs within the ceiling price. Contractor Incentive (other than maximizing goodwill)1 Realizes a higher fee by completing the work at a cost and/or by meeting other objective performance targets. Realizes a higher fee by meeting judgmental performance standards. Realizes a higher rate of return (i.e., fee divided by total cost) as total cost decreases. If CS, shares in the cost of providing a deliverable of mutual benefit Typical Application Research and development of the prototype for a major system. Large scale research study. Research study Joint research with educational institutions. Emergency repairs to heating plants and aircraft engines. Principal Limitations in FAR Parts 16, 32, 35, and 52 The contractor must have an adequate accounting system. The Government must exercise surveillance during performance to ensure use of efficient methods and cost controls. Must be negotiated. Must be justified. Statutory and regulatory limits on the fees that may be negotiated. Must include the applicable Limitation of Cost clause at FAR 52.232-20 through 23. rates must be negotiated. MUST be justified. The Government MUST exercise appropriate surveillance to ensure efficient performance. Variants Completion or Term. Labor Hour (LH)