16.306 Cost-plus-fixed-fee contracts.

(a) Description. 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. This contract type permits contracting for efforts that might

otherwise present too great a risk to contractors, but it provides the contractor only a minimum

incentive to control costs.

(b) Application.

(1) A cost-plus-fixed-fee contract is suitable for use when the conditions of 16.301-2 are present and,

for example-

(i) The contract is for the performance of research or preliminary exploration or study, and the level

of effort required is unknown; or

(ii) The contract is for development and test, and using a cost-plus-incentive-fee contract is not

practical.

(2) A cost-plus-fixed-fee contract normally should not be used in development of major systems (see

part 34) once preliminary exploration, studies, and risk reduction have indicated a high degree of

probability that the development is achievable and the Government has established reasonably firm

performance objectives and schedules.

(c) Limitations. No cost-plus-fixed-fee contract shall be awarded unless the contracting officer

complies with all limitations in 15.404-4(c)(4)(i) and 16.301-3.

(d) Completion and term forms. A cost-plus-fixed-fee contract may take one of two basic formscompletion or term.

(1) The completion form describes the scope of work by stating a definite goal or target and

specifying an end product. This form of contract normally requires the contractor to complete and

deliver the specified end product (e.g.,a final report of research accomplishing the goal or target)

within the estimated cost, if possible, as a condition for payment of the entire fixed fee. However, in

the event the work cannot be completed within the estimated cost, the Government may require

more effort without increase in fee, provided the Government increases the estimated cost.

(2) The term form describes the scope of work in general terms and obligates the contractor to

devote a specified level of effort for a stated time period. Under this form, if the performance is

considered satisfactory by the Government, the fixed fee is payable at the expiration of the agreedupon period, upon contractor statement that the level of effort specified in the contract has been

expended in performing the contract work. Renewal for further periods of performance is a new

acquisition that involves new cost and fee arrangements.

(3) Because of the differences in obligation assumed by the contractor, the completion form is

preferred over the term form whenever the work, or specific milestones for the work, can be defined

well enough to permit development of estimates within which the contractor can be expected to

complete the work.
(4) The term form shall not be used unless the contractor is obligated by the contract to provide a

specific level of effort within a definite time period.

Parent topic: Subpart 16.3 - Cost-Reimbursement Contracts