[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: 48CFR16.402-2]



[Page 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. 16.402-2  Performance incentives.



    (a) Performance incentives may be considered in connection with 

specific product characteristics (e.g., a missile range, an aircraft 

speed, an engine thrust, or a vehicle maneuverability) or other specific 

elements of the contractor's performance. These incentives should be 

designed to relate profit or fee to results achieved by the contractor, 

compared with specified targets.

    (b) To the maximum extent practicable, positive and negative 

performance incentives shall be considered in connection with service 

contracts for performance of objectively measurable tasks when quality 

of performance is critical and incentives are likely to motivate the 

contractor.

    (c) Technical performance incentives may be particularly appropriate 

in major systems contracts, both in development (when performance 

objectives are known and the fabrication of prototypes for test and 

evaluation is required) and in production (if improved performance is 

attainable and highly desirable to the Government).

    (d) Technical performance incentives may involve a variety of 

specific characteristics that contribute to the overall performance of 

the end item. Accordingly, the incentives on individual technical 

characteristics must be balanced so that no one of them is exaggerated 

to the detriment of the overall performance of the end item.

    (e) Performance tests and/or assessments of work performance are 

generally essential in order to determine the degree of attainment of 

performance targets. Therefore, the contract must be as specific as 

possible in establishing test criteria (such as testing conditions, 

instrumentation precision, and data interpretation) and performance 

standards (such as the quality levels of services to be provided).

    (f) Because performance incentives present complex problems in 

contract administration, the contracting officer should negotiate them 

in full coordination with Government engineering and pricing 

specialists.

    (g) It is essential that the Government and contractor agree 

explicitly on the effect that contract changes (e.g., pursuant to the 

Changes clause) will have on performance incentives.

    (h) The contracting officer must exercise care, in establishing 

performance criteria, to recognize that the contractor should not be 

rewarded or penalized for attainments of Government-furnished 

components.



[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 44815, Aug. 22, 1997]