How does an award fee contract work?

A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (1) a base amount fixed at the inception of the contract, if applicable and at the discretion of the contracting officer, and (2) an award amount that the contractor may earn in whole or in part during the performance …

What is an award fee contract?

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.

How does a cost plus incentive fee contract 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 the difference between cost plus incentive fee and cost-plus award fee contract?

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 does cost-plus award fee mean?

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 a disadvantage of a cost-plus fixed fee contract?

Disadvantages of cost-plus fixed-fee contracts may include: The final, overall cost may not be very clear at the beginning of negotiations. May require additional administration or oversight of the project to ensure that the contractor is factoring in the various cost factors.

What does cost-plus fixed fee mean?

A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract.

What are contract administration functions?

Contract administration involves the function of ensuring contract activities are in compliance with contractual specifications such as quality, quantity, objectives, schedules and manner specified within the contract. It also requires the review of progress reports, status reports and timesheets as required.

What is cost-plus award fee?

Who assumes the risk in a cost-plus award fee contract How?

Cost reimbursable (or Cost Plus) Cost reimbursable (CR) contracts involve payment based on sellers’ actual costs as well as a fee or incentive for meeting or exceeding project objectives. Therefore, the buyer bears the highest cost risk.

Why do buyers choose cost-plus fixed fee contract?

Some advantages of a CPFF contract can include: The final cost may be lower than in a normal contract, as the contractor usually will not “inflate” prices to cover risks. The contractor also has less incentive to control the project costs (in contrast to other types of contracts, such as a fixed-price contract)

What are the main advantages of 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 …

Which is the best cost plus award fee contract?

This type of contract allows financial incentives based on the defined objectives. It also provides flexibility to the seller whenever there is work that cannot be defined from the start. This type of contract works well for high-risk projects. One of the types of cost reimbursement contract is the cost plus award free contracts (CPAF).

Why do I need an award fee for a contract?

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.

Is there a maximum fee for a CPFF contract?

greater than the fixed fee that might have been established, assuming use of a CPFF contract. Maximum fee is the sum of base fee, award fee, and any other incentive fee payable under the contract. It is subject to FAR administrative limitations of not more than 15% of estimated contract costs (exclusive of fee) in the case of CPAF contracts

Which is the best type of cost reimbursement contract?

This type of contract works well for high-risk projects. One of the types of cost reimbursement contract is the cost plus award free contracts (CPAF). This type of contract involves reimbursing the seller for all the legal costs that he or she has incurred.