[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: 48CFR16.405-1]

[Page 306-307]
 
            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. 16.405-1  Cost-plus-incentive-fee contracts.

    (a) Description. 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. This contract type specifies a 
target cost, a target fee, minimum and maximum fees, and a fee 
adjustment formula. After contract performance, the fee payable to the 
contractor is determined in accordance with the formula. The formula 
provides, within limits, for increases in fee above target fee when 
total allowable costs are less than target costs, and decreases in fee 
below target fee when total allowable costs exceed target costs. This 
increase or decrease is intended to provide an incentive for the 
contractor to manage the contract effectively. When total allowable cost 
is greater than or less than the range of costs within which the fee-
adjustment formula operates, the contractor is

[[Page 307]]

paid total allowable costs, plus the minimum or maximum fee.
    (b) Application. (1) A cost-plus-incentive-fee contract is 
appropriate for services or development and test programs when--
    (i) A cost-reimbursement contract is necessary (see 16.301-2) and
    (ii) A target cost and a fee adjustment formula can be negotiated 
that are likely to motivate the contractor to manage effectively.
    (2) The contract may include technical performance incentives when 
it is highly probable that the required development of a major system is 
feasible and the Government has established its performance objectives, 
at least in general terms. This approach may also apply to other 
acquisitions, if the use of both cost and technical performance 
incentives is desirable and administratively practical.
    (3) The fee adjustment formula should provide an incentive that will 
be effective over the full range of reasonably foreseeable variations 
from target cost. If a high maximum fee is negotiated, the contract 
shall also provide for a low minimum fee that may be a zero fee or, in 
rare cases, a negative fee.
    (c) Limitations. No cost-plus-incentive-fee contract shall be 
awarded unless all limitations in 16.301-3 are complied with.

[48 FR 42219, Sept. 19, 1983. Redesignated at 62 FR 12696, Mar. 17, 
1997, as amended at 62 FR 44815, Aug. 22, 1997]