[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR16.403]

[Page 304-305]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 16--TYPES OF CONTRACTS--Table of Contents
 
                    Subpart 16.4--Incentive Contracts
 
Sec. 16.403  Fixed-price incentive contracts.

    (a) Description. A fixed-price incentive contract is a fixed-price 
contract that provides for adjusting profit and establishing the final 
contract price by application of a formula based on the relationship of 
total final negotiated cost to total target cost. The final price is 
subject to a price ceiling, negotiated at the outset. The two forms of 
fixed-price incentive contracts, firm target and successive targets, are 
further described in 16.403-1 and 16.403-2 below.
    (b) Application. A fixed-price incentive contract is appropriate 
when--
    (1) A firm-fixed-price contract is not suitable;
    (2) The nature of the supplies or services being acquired and other 
circumstances of the acquisition are such that the contractor's 
assumption of a degree of cost responsibility will provide a positive 
profit incentive for effective cost control and performance; and
    (3) If the contract also includes incentives on technical 
performance and/or delivery, the performance requirements provide a 
reasonable opportunity for the incentives to have a meaningful impact on 
the contractor's management of the work.
    (c) Billing prices. In fixed-price incentive contracts, billing 
prices are established as an interim basis for payment. These billing 
prices may be adjusted, within the ceiling limits, upon request of 
either party to the contract, when it becomes apparent that final 
negotiated

[[Page 305]]

cost will be substantially different from the target cost.

[48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994]