[Code of Federal Regulations]

[Title 48, Volume 1]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR16.401]



[Page 312]

 

            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. 16.401  General.





    (a) Incentive contracts as described in this subpart are appropriate 

when a firm-fixed-price contract is not appropriate and the required 

supplies or services can be acquired at lower costs and, in certain 

instances, with improved delivery or technical performance, by relating 

the amount of profit or fee payable under the contract to the 

contractor's performance. Incentive contracts are designed to obtain 

specific acquisition objectives by--

    (1) Establishing reasonable and attainable targets that are clearly 

communicated to the contractor; and

    (2) Including appropriate incentive arrangements designed to (i) 

motivate contractor efforts that might not otherwise be emphasized and 

(ii) discourage contractor inefficiency and waste.

    (b) When predetermined, formula-type incentives on technical 

performance or delivery are included, increases in profit or fee are 

provided only for achievement that surpasses the targets, and decreases 

are provided for to the extent that such targets are not met. The 

incentive increases or decreases are applied to performance targets 

rather than minimum performance requirements.

    (c) The two basic categories of incentive contracts are fixed-price 

incentive contracts (see 16.403 and 16.404) and cost-reimbursement 

incentive contracts (see 16.405). Since it is usually to the 

Government's advantage for the contractor to assume substantial cost 

responsibility and an appropriate share of the cost risk, fixed-price 

incentive contracts are preferred when contract costs and performance 

requirements are reasonably certain. Cost-reimbursement incentive 

contracts are subject to the overall limitations in 16.301 that apply to 

all cost-reimbursement contracts.

    (d) Award-fee contracts are a type of incentive contract.



[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12695, Mar. 17, 1997]