Cost Plus Fixed Fee Contracts

Third Party Procurement

Frequently Asked Questions

Q = Question; A = Answer

Q. We would like to incentivize our CPFF contractors to perform their contracts in a timely manner. Can we structure our CPFF contracts to pay the fixed fee upon submission of contract deliverables instead of as a percent of cost incurred on a monthly basis?

A. We believe this would be an excellent approach to motivating the contractor to complete the contract on time. In fact the fixed fee is only fully earned when the contract is completely performed. It is not earned simply for incurring costs. Your approach recognizes the contractor’s responsibility under the contract to successfully perform as consideration for the payment of fee. Payment of costs, however, is made on the basis of “best efforts” as the costs are incurred. (Posted: February, 2013)

Q. Can we place caps or limits on direct costs on a cost plus fixed fee contract? For example, can we reject a proposed increase to a direct labor rate that we find to be excessive? Or are we required to accept the rate as their true cost so long as it can be supported by an audit?

A. You are required to ensure that all costs billed to your contract are allowable costs as defined in FAR Part 31 cost principles, and in fact grantees are required to include FAR Part 31 cost principles in their cost reimbursement contracts for the purpose of determining allowable costs under the contract. This means that contractors are not entitled to be reimbursed for unallowable costs as defined in FAR Part 31. The issue you raise is one of reasonableness of compensation, and this is dealt with in FAR Part 31.205-6. FAR Part 31.205-6 – “Compensation for Personal Services” deals with the issue of compensation and reasonableness thereof. This subpart has the following guidance for compensating individuals not covered by labor – management agreements:

(Posted: August, 2013)