FAR 52.216-12—Cost-Sharing Contract-No Fee.
Plain-English Summary
FAR 52.216-12, Cost-Sharing Contract-No Fee, governs a specific type of cost-reimbursement arrangement in which the contractor is expected to share in the cost of performance and receives no fee or profit. The clause explains when it is used, confirms that the Government will not pay a fee, and establishes a payment-control mechanism that allows the Contracting Officer to withhold further reimbursement after the Government has paid 80 percent of its share of the estimated cost. It also limits the size of the reserve that may be withheld to protect the Government’s interest, with a special lower cap for nonprofit organizations. In addition, the clause includes an alternate for research and development contracts with educational institutions when the Contracting Officer determines that withholding is unnecessary, in which case the reserve-withholding paragraph is deleted. In practice, this clause is important because it directly affects contractor cash flow, billing strategy, and the Government’s ability to manage financial risk on cost-sharing work.
Key Rules
No fee is payable
The Government does not pay the contractor any fee under this contract. The arrangement is strictly cost-sharing, so the contractor is compensated only through allowable cost reimbursement to the extent provided in the contract, not through profit or fixed fee.
Withholding may begin after 80 percent
Once the Government has paid 80 percent of its share of the total estimated cost shown in the Schedule, the Contracting Officer may stop or reduce further reimbursement of allowable costs. This withholding is intended to create a reserve to protect the Government’s financial interest.
Reserve is capped
Any reserve withheld under paragraph (b) may not exceed 1 percent of the Government’s share of the total estimated cost shown in the Schedule or $100,000, whichever is less. For contracts with a nonprofit organization, the clause may be modified to substitute $10,000 for $100,000 as the maximum reserve.
Contracting Officer controls necessity
The Contracting Officer decides whether a reserve is necessary and how much should be withheld, subject to the clause’s maximum limit. The reserve amount must be tied to protecting the Government’s interest, not used as an open-ended funding holdback.
Alternate I removes withholding in certain R&D cases
For research and development contracts with educational institutions, if the Contracting Officer determines that withholding part of allowable cost is not required, Alternate I is used and paragraph (b) is deleted. This means the contract still remains cost-sharing and no-fee, but the reserve mechanism does not apply.
Responsibilities
Contracting Officer
Insert the clause when a cost-sharing contract is contemplated, decide whether withholding is necessary, determine the amount of any reserve within the clause’s cap, and apply the nonprofit or educational-institution modifications when appropriate. The Contracting Officer must also manage payment timing so that withholding begins only after the 80 percent threshold is reached.
Contractor
Perform the work under a cost-sharing, no-fee arrangement, bill only for allowable costs consistent with the contract, and plan for the possibility that the Government may withhold further reimbursement after 80 percent of its share has been paid. The contractor must understand that no fee will be paid and that cash flow may be affected by the reserve.
Government
Reimburse allowable costs in accordance with the contract’s cost-sharing terms and support the reserve mechanism when needed to protect its financial interest. The Government must also ensure the contract structure and clause version used match the contemplated cost-sharing arrangement.
Agency/Procurement Staff
Use the clause only in appropriate cost-sharing solicitations and contracts, ensure the Schedule accurately states the Government’s share of the estimated cost, and coordinate any special clause modifications for nonprofit organizations or educational institutions.
Practical Implications
This clause has a direct cash-flow impact because reimbursement can be slowed once the 80 percent threshold is reached, so contractors should forecast billing and working capital carefully.
Because no fee is allowed, contractors should not expect profit on the contract; any proposal, pricing, or internal approval process should reflect that the arrangement is intended for shared-cost participation rather than margin.
The reserve cap matters operationally: contracting officers cannot withhold unlimited amounts, and contractors should verify that any reserve is within the clause’s stated maximum and tied to the Government’s share of estimated cost.
The clause depends on accurate schedule values, so errors in the Government’s share of total estimated cost can distort the withholding threshold and reserve limit.
For educational institutions and nonprofits, the special modifications can materially change payment administration, so parties should confirm whether Alternate I or the nonprofit reserve cap applies before award and before invoicing begins.
Official Regulatory Text
As prescribed in 16.307 (f) , insert the following clause in solicitations and contracts when a cost-sharing contract is contemplated. This clause may be modified by substituting "$10,000" in lieu of "$100,000" as the maximum reserve in paragraph (b) if the contract is with a nonprofit organization. Cost Sharing Contract-No Fee (Apr 1984) (a) The Government shall not pay to the Contractor a fee for performing this contract. (b) After paying 80 percent of the Government’s share of the total estimated cost of performance 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 Government’s share 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, for which the contracting officer has determined that withholding of a portion of allowable cost is not required, delete paragraph (b) of the basic clause.