[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: 48CFR16.403]



[Page 314]

 

            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. 16.403  Fixed-price incentive contracts.



    (a) Description. A fixed-price incentive contract is a fixed-price 

contract that provides for adjusting profit and establishing the final 

contract price by application of a formula based on the relationship of 

total final negotiated cost to total target cost. The final price is 

subject to a price ceiling, negotiated at the outset. The two forms of 

fixed-price incentive contracts, firm target and successive targets, are 

further described in 16.403-1 and 16.403-2 below.

    (b) Application. A fixed-price incentive contract is appropriate 

when--

    (1) A firm-fixed-price contract is not suitable;

    (2) The nature of the supplies or services being acquired and other 

circumstances of the acquisition are such that the contractor's 

assumption of a degree of cost responsibility will provide a positive 

profit incentive for effective cost control and performance; and

    (3) If the contract also includes incentives on technical 

performance and/or delivery, the performance requirements provide a 

reasonable opportunity for the incentives to have a meaningful impact on 

the contractor's management of the work.

    (c) Billing prices. In fixed-price incentive contracts, billing 

prices are established as an interim basis for payment. These billing 

prices may be adjusted, within the ceiling limits, upon request of 

either party to the contract, when it becomes apparent that final 

negotiated cost will be substantially different from the target cost.



[48 FR 42219, Sept. 19, 1983, as amended at 59 FR 64785, Dec. 15, 1994]