What is the difference between cost-plus-incentive-fee and cost-plus award fee?

What is the difference between cost-plus-incentive-fee and cost-plus award fee?

Cost-plus-incentive fee (CPIF) contracts have a larger fee awarded for contracts which meet or exceed performance targets, including any cost savings. Cost-plus-award fee (CPAF) contracts pay a fee based upon the contractor’s work performance.

What is cost-plus award fee?

A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (a)a base amount (which may be zero) fixed at inception of the contract and (b)an award amount, based upon a judgmental evaluation by the Government, sufficient to provide motivation for excellence in contract …

What is the difference between CPIF and CPAF?

In the CPAF, the buyer reimburses the seller for the actual costs and then awards a fee based on the buyer’s satisfaction of performance standards outlined in the contract. Cost Plus Incentive Fee (CPIF) – This contract shares the most risk between buyer and seller of the cost-reimbursable contracts.

What is an award fee incentive?

Award Fee Contracts are a type of Incentive Contract to incentivize the contractor to achieve cost efficiency. These can be a written contract or special incentives.

What are the advantages of a cost plus contract?

Cost Plus Contract Advantages Higher quality since the contractor has incentive to use the best labor and materials. Less chance of having the project overbid. Often less expensive than a fixed-price contract since contractors don’t need to charge a higher price to cover the risk of a higher materials cost than …

How does cost-plus-incentive-fee work?

The cost-plus-incentive-fee contract is a cost-reimbursement contract that provides for the initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs.

What is a cost-plus percentage of cost contract?

A cost plus percentage of cost contract or CPPC is a cost reimbursement contract containing some element that obligates the non-state entity to pay the contractor an amount, undetermined at the time the contract was made and to be incurred in the future, based on a percentage of future costs.

What is an award fee?

An award fee contract provides an additional profit or fee amount that may be awarded, in whole or in part, based upon periodic evaluations of ongoing contractor performance. For this reason, many believe the award fee approach is as much a management tool as an incentive contract type.

When should I use CPAF?

Situations for CPAF Contract Use. (FAR 16.405-2(b)(1) Consider a CPAF contract when the following conditions exist: It is neither feasible nor effective to devise predetermined objective incentive targets applicable to cost, technical performance, or schedule.

What are the disadvantages of cost plus contract?

Cost Plus Contract Disadvantages For the buyer, the major disadvantage of this type of contract is the risk for paying much more than expected on materials. The contractor also has less incentive to be efficient since they will profit either way.

What is a cost plus award fee contract?

Cost plus award fee and cost plus incentive fee contracts are set up similarly. Both contract forms allow the seller to be reimbursed for all costs incurred while completing the work. They both also offer an additional fee on top of that.

How is the cost plus incentive fee determined?

In the cost plus incentive fee contract, the fee amount is determined by evaluating the seller’s performance using predetermined performance objectives, which are specifically outlined in the contract. This allows for consistency and fairness.

How does an incentive fee work in a CPIF contract?

In a CPIF contract the seller is reimbursed for allowable costs and the seller receives an incentive fee based on achieving certain performance objectives. If the final costs are less or greater than the original estimated costs, then both the buyer and seller share costs based upon a pre-negotiated formula (such as 70/30).

How is The CPFF fee calculated in a contract?

In a CPFF contract the seller is reimbursed for allowable costs for performing the work and also receives a fixed fee payment that is calculated as a percentage of the initial estimated project costs. The fee amount would only change if there was a change to the project scope. Contract value = actual costs + fixed fee.