FAR 52.216-11—Cost Contract-No Fee.
Plain-English Summary
FAR 52.216-11, Cost Contract-No Fee, is the clause used when the Government is awarding a cost-reimbursement contract that does not provide any fee and is not a cost-sharing arrangement. It tells the contractor that no fee will be paid, and it gives the Contracting Officer limited authority to withhold a portion of allowable cost payments after the Government has paid 80 percent of the total estimated cost shown in the schedule. The purpose is to protect the Government’s financial interest by creating a reserve when the contract is nearing its estimated cost ceiling, while still allowing normal reimbursement of allowable costs during performance. The clause also recognizes a special nonprofit exception: for nonprofit organizations, the maximum reserve may be reduced from $100,000 to $10,000, and in certain research and development contracts with educational institutions or nonprofits, paragraph (b) may be deleted entirely if withholding is not needed. In practice, this clause matters because it affects cash flow, payment timing, and the Government’s leverage to manage overruns on no-fee cost-reimbursement work.
Key Rules
No fee is payable
The Government must not pay the contractor any fee under this contract. This clause is specifically for cost-reimbursement work where compensation is limited to allowable costs, not profit or incentive fee.
Withholding may begin at 80 percent
After the Government has paid 80 percent of the total estimated cost in the schedule, the Contracting Officer may stop further payment of allowable costs and hold back a reserve. This is discretionary, not automatic, and is intended to protect the Government if the contract is approaching its estimated cost limit.
Reserve is capped by formula
Any reserve set aside may not exceed 1 percent of the total estimated cost shown in the schedule or $100,000, whichever is less. This limits the amount the Government can withhold even when it believes additional protection is warranted.
Nonprofit reserve cap is lower
If the contractor is a nonprofit organization, the clause may be modified to substitute $10,000 for $100,000 as the maximum reserve. This special rule reduces the potential withholding amount for nonprofit contractors.
Alternate I removes withholding in some R&D cases
For research and development contracts with an educational institution or nonprofit organization, the Contracting Officer may determine that withholding is unnecessary and delete paragraph (b) entirely. In that case, the Government has no reserve-withholding mechanism under this clause.
Applies only when no-fee cost reimbursement is contemplated
The clause is prescribed for solicitations and contracts when a cost-reimbursement contract with no fee is planned and the arrangement is not cost-sharing. It is not the standard clause for contracts that include fee or shared-cost participation.
Responsibilities
Contracting Officer
Insert this clause when a no-fee cost-reimbursement contract is contemplated and ensure the contract is not a cost-sharing arrangement. Decide whether to withhold payments after 80 percent of estimated cost has been paid, determine the amount of the reserve needed to protect the Government’s interest, apply the correct reserve cap, and use Alternate I or the nonprofit modification when appropriate.
Contractor
Perform the work under a cost-reimbursement, no-fee arrangement and bill only for allowable costs. Monitor cumulative billings against the estimated cost, understand that payment may be withheld once 80 percent of estimated cost has been paid, and plan cash flow accordingly.
Agency/Program Office
Support the Contracting Officer by identifying whether the requirement is a no-fee cost-reimbursement effort, whether it involves a nonprofit or educational institution, and whether withholding is necessary to protect the Government’s interest based on performance and funding status.
Finance/Payment Office
Process reimbursements in accordance with the contract terms and implement any withholding or reserve directed by the Contracting Officer. Ensure payments stop or are reduced when the reserve is established and resume only as authorized.
Practical Implications
This clause directly affects contractor cash flow because the Government can withhold further reimbursement after 80 percent of estimated cost has been paid. Contractors should track burn rate closely and avoid assuming full reimbursement will continue through the end of performance.
The reserve is a protection tool, not a penalty. Contracting Officers should use it only when needed to protect the Government’s interest, and they should document the rationale for withholding.
A common pitfall is confusing a no-fee cost contract with a cost-sharing contract. This clause applies only when the contractor is reimbursed for allowable costs but receives no fee, not when the contractor is expected to share in the cost burden.
For nonprofit and educational institution R&D work, the special reserve treatment can materially change payment administration. Parties should confirm whether the nonprofit modification or Alternate I applies before award to avoid incorrect billing and payment terms.
Because the reserve cap is tied to the total estimated cost shown in the schedule, inaccurate estimating or schedule changes can affect when withholding begins and how much may be reserved. Both sides should keep the estimated cost figure current and aligned with contract modifications.
Official Regulatory Text
As prescribed in 16.307 (e) , insert the clause in solicitations and contracts when a cost-reimbursement contract is contemplated that provides no fee and is not a cost-sharing contract. This clause may be modified by substituting "$10,000" in lieu of "$100,000" as the maximum reserve in paragraph (b) if the Contractor is a nonprofit organization. Cost Contract-No Fee (Apr 1984) (a) The Government shall not pay the Contractor a fee for performing this contract. (b) After payment of 80 percent of the total estimated cost shown in the Schedule, the Contracting Officer may withhold further payment of allowable cost until a reserve is set aside in an amount that the Contracting Officer considers necessary to protect the Government’s interest. This reserve shall not exceed onepercent of the total estimated cost shown in the Schedule or $100,000, whichever is less. (End of clause) Alternate I (Apr 1984) . In a contract for research and development with an educational institution or a nonprofit organization, for which the Contracting Officer has determined that withholding of a portion of allowable costs is not required, delete paragraph (b) of the basic clause.