(a) Description. A cost-plus-award-fee contract is a
cost-reimbursement contract that provides for a fee consisting of (1) a
base amount fixed at inception of the contract and (2) an award amount
that the contractor may earn in whole or in part during performance
and that is sufficient to provide motivation for excellence in such
areas as quality, timeliness, technical ingenuity, and cost-effective
management. The amount of the award fee to be paid is determined
by the Government's judgmental evaluation of the contractor's
performance in terms of the criteria stated in the contract. This
determination is made unilaterally by the Government and is not subject
to the Disputes clause.
(b) Application. (1) The cost-plus-award-fee contract is suitable
for use when--
(i) The work to be performed is such that it is neither
feasible nor effective to devise predetermined objective incentive
targets applicable to cost, technical performance, or schedule;
(ii) The likelihood of meeting acquisition objectives
will be enhanced by using a contract that effectively motivates the
contractor toward exceptional performance and provides the Government
with the flexibility to evaluate both actual performance and the
conditions under which it was achieved; and
(iii) Any additional administrative effort and cost required
to monitor and evaluate performance are justified by the expected
benefits.
(2) The number of evaluation criteria and the requirements
they represent will differ widely among contracts. The criteria and
rating plan should motivate the contractor to improve performance
in the areas rated, but not at the expense of at least minimum
acceptable performance in all other areas.
(3) Cost-plus-award-fee contracts shall provide for
evaluation at stated intervals during performance, so that the
contractor will periodically be informed of the quality of its
performance and the areas in which improvement is expected. Partial
payment of fee shall generally correspond to the evaluation periods.
This makes effective the incentive which the award fee can create by
inducing the contractor to improve poor performance or to continue
good performance.
(c) Limitations. No cost-plus-award-fee contract shall be
awarded unless--
(1) All of the limitations in 16.301-3 are complied with;
(2) The maximum fee payable (i.e., the base fee plus the highest
potential award fee) complies with the limitations in 16.301-3; and
(3) The contract amount, performance period, and expected
benefits are sufficient to warrant the additional administrative
effort and cost involved.
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