Contractor Generally realizes an Generally realizes an Realizes a higher Generally realizes an For the period of additional dollar of additional dollar of profit by completing additional dollar of performance, realizes Incentive (other profit for every dollar profit for dollar the work below the profit for dollar an additional dollar of than that costs are reduced. that costs are ceiling price and/or that costs are profit for every dollar maximizing reduced. by meeting objective reduced; earns an that costs are goodwill) performance targets. additional for reduced. satisfying the performance standards. Typical Commercial supplies Long-term contracts Production of a major Perfromance-based Long-term production and services. for commercial system based on a service contracts. of spare parts for a Application supplies during a prototype major system. period of high inflation Principal Generally NOT Must be justified. Must be justified. Must be negotiated. MUST be negotiated. appropriate for R&D. Must be negotiated. Contractor must have Limitations in Contractor must have an adequate FAR Parts 16, an adequate accounting system 32, 35, and 52 accounting system. that supports the Cost data must pricing periods. support targets. Prompt redeterminations. Variants Firm Fixed-price Level Successive Targets Retroactive of Effort. Redetermination Comparison of Contract Types Cost-Plus Cost-Plus Cost-Plus Cost or Incentive-Fee Award-Fee Fixed-Fee Cost- Sharing Time & Materials (T&M) (CPIF) (CPAF) (CPFF) (C or CS) Principal Risk to be Highly uncertain and speculative hours, labor mix, and/or material requirements (and other things) Mitigated necessary to perform the contract. The Government assumes the risks inherent in the contract -benefiting if the actual cost is lower than the expected cost-losing if the work cannot be completed within the expected cost of performance.
Contractor Incentive (other than maximizing goodwill) Generally realizes an additional dollar of profit for every dollar that costs are reduced. Generally realizes an additional dollar of profit for dollar that costs are reduced. Realizes a higher profit by completing the work below the ceiling price and/or by meeting objective performance targets. Generally realizes an additional dollar of profit for dollar that costs are reduced; earns an additional for satisfying the performance standards. For the period of performance, realizes an additional dollar of profit for every dollar that costs are reduced. Typical Application Commercial supplies and services. Long-term contracts for commercial supplies during a period of high inflation Production of a major system based on a prototype Perfromance-based service contracts. Long-term production of spare parts for a major system. Principal Limitations in FAR Parts 16, 32, 35, and 52 Generally NOT appropriate for R&D. Must be justified. Must be justified. Must be negotiated. Contractor must have an adequate accounting system. Cost data must support targets. Must be negotiated. MUST be negotiated. Contractor must have an adequate accounting system that supports the pricing periods. Prompt redeterminations. Variants Firm Fixed-price Level of Effort. Successive Targets Retroactive Redetermination Comparison of Contract Types Cost-Plus Incentive-Fee (CPIF) Cost-Plus Award-Fee (CPAF) Cost-Plus Fixed-Fee (CPFF) Cost or Cost- Sharing (C or CS) Time & Materials (T&M) Principal Risk to be Mitigated Highly uncertain and speculative hours, labor mix, and/or material requirements (and other things) necessary to perform the contract. The Government assumes the risks inherent in the contract -benefiting if the actual cost is lower than the expected cost-losing if the work cannot be completed within the expected cost of performance.
contract_type_table.docx