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Cost-plus award fee contract

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Definition Edit

A cost-plus award fee contract (CPAF) is

a cost reimbursement contract that provides for a fee consisting of a base amount fixed at inception of the contract plus an award amount that may be given based upon a judgmental evaluation by the customer of contract performance. The theory behind this type of contract is that although the customer assumes most of the cost risk, it retains control over most or all of the contractor's potential fee as leverage.[1]

U.S. government Edit

"The CPAF contract should be used when the work to be performed is neither feasible nor effective to devise predetermined objective incentive targets applicable to cost, schedule or technical performance. In cost reimbursement contracts when it is not possible to establish pre-negotiated objective targets, it may be necessary to incentivize subjective areas of the contractor's performance, thus a cost-plus-award-fee contract may be appropriate.

"The CPAF contracts contain attributes that often result in better communication than other types of contracts between the Government and the contractor and greater contractor motivation to achieve exceptional contract performance. These attributes are normally associated with the process of monitoring and evaluating contractor performance.

"The philosophy of providing contractors an award fee is based on the premise that the potential improvement in quality of contract performance offsets an additional cost to the contract. How one establishes and allocates fee on a CPAF contract is critical to obtaining the best possible motivation for excellent performance at the most significant times. . . .

"The combination of contractor motivation and evaluation flexibility can prove advantageous in the situation making necessary use of a cost reimbursement type contract. It also can encourage more effective communications between the parties and foster a kind of management discipline that is often difficult to sustain in other than an award fee environment. For this reason, many believe the award fee approach is as much a management tool as an incentive contract type."[2]

References Edit

  1. Information Management: Challenges in Implementing an Electronic Records Archive, at 4 n.4.
  2. Defense Acquisition University, ACQuipedia, Cost Plus Award Fee Contracts (full-text).

External resources Edit

U.S. government contracting:

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