[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: 48CFR16.402-1]



[Page 312-313]

 

            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



[[Page 313]]



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]