[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR16.402-1]

[Page 302]
 
            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.  16.402-1  Cost incentives.

    (a) Most incentive contracts include only cost incentives, which 
take the form of a profit or fee adjustment formula and are intended to 
motivate the contractor to effectively manage costs. No incentive 
contract may provide for other incentives without also providing a cost 
incentive (or constraint).
    (b) Except for award-fee contracts (see 16.404 and 16.405-2), 
incentive contracts include a target cost, a target profit or fee, and a 
profit or fee adjustment formula that (within the constraints of a price 
ceiling or minimum and maximum fee) provides that--
    (1) Actual cost that meets the target will result in the target 
profit or fee;
    (2) Actual cost that exceeds the target will result in downward 
adjustment of target profit or fee; and
    (3) Actual cost that is below the target will result in upward 
adjustment of target profit or fee.

[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12696, Mar. 17, 1997; 
62 FR 51379, Oct. 1, 1997]