FAR 16.305—Cost-plus-award-fee contracts.
Plain-English Summary
FAR 16.305 defines the cost-plus-award-fee (CPAF) contract and places it within the broader framework of cost-reimbursement and incentive contracting. This section explains that a CPAF contract includes two fee components: a base amount, which may be zero and is fixed at contract inception, and an award amount that is determined later through the Government’s judgmental evaluation of performance. It also points readers to subpart 16.4 on incentive contracts, especially FAR 16.401(e), for a fuller discussion of how award-fee contracts work in practice. In addition, it flags important limitations in FAR 16.301-3 and FAR 16.401(e)(5), signaling that CPAF contracts are not appropriate for every acquisition and must be used within specific policy constraints. Practically, this section matters because it tells contracting officers and contractors that the fee is not formula-driven; instead, the Government retains discretion to assess performance against subjective criteria and decide how much award fee, if any, is earned. That makes clear performance plans, evaluation procedures, and disciplined administration essential to avoid disputes and ensure the fee structure actually motivates excellence.
Key Rules
CPAF is cost-reimbursement
A cost-plus-award-fee contract is a type of cost-reimbursement contract, so the contractor is paid allowable costs and receives a fee structure on top of those costs. The fee is not fixed solely by a formula tied to measurable outcomes.
Two-part fee structure
The fee consists of a base amount and an award amount. The base amount is fixed at contract inception and may be zero, while the award amount is determined later based on performance evaluation.
Award fee is judgmental
The Government decides the award amount through a judgmental evaluation of contract performance. This means the fee depends on qualitative assessment rather than automatic calculation.
Purpose is motivation for excellence
The award-fee structure is intended to motivate superior performance. It is used when the Government wants flexibility to reward excellence in areas that are difficult to measure objectively.
Read with incentive-contract rules
CPAF contracts are covered by subpart 16.4, Incentive Contracts, and must be understood together with FAR 16.401(e). That broader guidance explains how award-fee arrangements should be structured and administered.
Subject to limitations
The section expressly points to limitations in FAR 16.301-3 and FAR 16.401(e)(5). Those limitations constrain when and how award-fee contracts may be used, so the contract type must be selected carefully.
Responsibilities
Contracting Officer
Select the CPAF structure only when appropriate under the FAR limitations, establish the base amount and award-fee framework at contract inception, and ensure the contract and award-fee procedures are consistent with subpart 16.4 and the cited limitations.
Government Evaluators / Award-Fee Board
Conduct the judgmental evaluation of contractor performance against the established criteria and recommend or determine the award-fee amount based on the contractor’s actual performance.
Contractor
Perform in a manner that supports strong award-fee evaluations, understand that the award amount is discretionary and performance-based, and manage work to the criteria and expectations established in the contract.
Agency
Ensure award-fee policies and administration support fair, consistent, and documented evaluations, and apply the FAR limitations governing the use of cost-plus-award-fee contracts.
Practical Implications
CPAF contracts give the Government flexibility, but they also require careful planning; vague criteria or poorly documented evaluations can lead to disputes and weak performance incentives.
Because the award fee is judgmental, contractors should not assume that meeting minimum requirements will maximize fee; they need to understand what the Government values and how performance will be assessed.
Contracting officers should verify that the acquisition truly calls for subjective performance motivation before choosing CPAF, since FAR limitations may make other contract types more appropriate.
The base amount may be zero, so contractors should not rely on a guaranteed profit component beyond what the contract expressly provides.
Strong administration is critical: award-fee plans, evaluation periods, and decision records should be clear enough to support transparency and defend the Government’s fee determinations.
Official Regulatory Text
A cost-plus-award-fee contract is a cost-reimbursement contract that provides for a fee consisting of (a)a base amount (which may be zero) fixed at inception of the contract and (b)an award amount, based upon a judgmental evaluation by the Government, sufficient to provide motivation for excellence in contract performance. cost-plus-award-fee contracts are covered in subpart 16.4 , Incentive Contracts. See 16.401 (e) for a more complete description and discussion of the application of these contracts. See 16.301-3 and 16.401 (e)(5) for limitations.