FAR 52.216-16—Incentive Price Revision-Firm Target.
Plain-English Summary
FAR 52.216-16, Incentive Price Revision-Firm Target, is the clause used in firm-target incentive contracts to set up a later price adjustment based on the contractor’s actual allowable costs and the agreed profit or loss formula. It covers the scope of items subject to revision, the ceiling price, the definition of costs, required post-performance data submission, the process for negotiating the final negotiated cost and final price, the profit/loss adjustment formula, the requirement for a contract modification to establish the final price, rules for adjusting interim billing prices, and the quarterly limitation on payments statement. In practice, the clause lets the Government pay target prices during performance while preserving a mechanism to reconcile to a final price after performance is complete and actual cost data are available. It is designed to share cost risk between the parties, encourage efficient performance, and prevent the Government from paying more than the negotiated ceiling. It also creates strong reporting and timing obligations for the contractor, because failure to submit required data can trigger repayment and interest. The clause is especially important for contracting officers because it requires active administration, monitoring of billing prices, and a formal final price revision through contract modification.
Key Rules
Items subject to revision
Only the supplies or services identified in the Schedule are covered by the clause, and the contracting officer must insert the applicable line item numbers and ceiling price. Any later-added items can be covered only if they are added by modification and specifically identified as subject to the clause.
Allowable costs control
For purposes of this clause, "costs" means allowable costs under FAR part 31 as of the contract date. That means the final price calculation is based on allowable, allocable, and properly supported costs, not every cost the contractor may have incurred.
Post-performance data submission
After delivery of the last unit or completion of the services for the covered items, the contractor must submit detailed cost and residual inventory data within the specified number of days. The submission must include incurred costs, estimated completion costs if any, residual inventory value, and any other information the contracting officer reasonably requires.
Failure to submit data
If the contractor misses the required data submission deadline and the Government later determines it overpaid, the contractor must repay the excess immediately. If repayment is not made within 30 days after the data due date, interest accrues under the contract’s Interest clause.
Final price negotiation
Once the contracting officer receives the required data, the parties must promptly negotiate the total final negotiated cost for the covered items. The final price is then calculated by applying the agreed profit or loss adjustment formula to that final negotiated cost.
Profit or loss formula
If final negotiated cost equals target cost, the contractor receives target profit. If final negotiated cost exceeds target cost, target profit is reduced by a specified percentage of the overrun. If final negotiated cost is below target cost, target profit is increased by a specified percentage of the underrun.
Final price is fixed by modification
The total final price must be documented in a signed contract modification and is not subject to further revision except for expressly agreed exclusions or adjustments required by this or another contract clause. This makes the modification the controlling record of the settled price.
Billing price adjustments
Before the final price modification is executed, invoices or vouchers are billed at the target prices. If current billing prices appear materially higher than estimated final prices, the parties may reduce billing prices; if factual data show final cost will be materially higher than target cost, billing prices may be increased up to the ceiling difference. Any billing-price change must be in a modification and does not change the final price calculation.
Quarterly limitation on payments
Until final price revision is complete, the contractor must provide a quarterly limitation on payments statement within 45 days after each applicable quarter of its fiscal year. This statement supports monitoring of cumulative payments and helps the Government avoid overpayment while the final price is still pending.
Responsibilities
Contracting Officer
Insert the correct line item numbers, ceiling price, target cost/profit percentages, and data-submission deadline; monitor performance and billing prices; request any additional relevant data; negotiate the final negotiated cost and final price; execute the contract modification establishing the final price; and ensure quarterly limitation on payments statements are received and reviewed.
Contractor
Perform the covered work, bill at target prices until modified, submit the required post-performance cost, inventory, and supporting data on time, provide quarterly limitation on payments statements while final price revision is pending, support any requested billing-price adjustments with factual data, and repay any overpayment promptly if required.
Government/Agency
Administer the contract to ensure payments do not exceed the ceiling price, review cost data and residual inventory information, and support the contracting officer in reconciling interim payments to the final settled price.
Practical Implications
This clause is not a simple fixed-price arrangement; it requires close cost monitoring and a later settlement process, so both sides need strong records and disciplined contract administration.
The contractor’s data submission deadline is critical. Missing it can create repayment exposure and interest, even if the overpayment was not intentional.
Billing prices are only interim amounts. Contractors should not assume target billing prices will remain unchanged if actual cost trends show a significant variance from target.
The ceiling price is a hard cap on the total final price for the covered items, so the Government is protected from paying above that amount even if actual costs rise.
Contracting officers should make sure the clause is drafted with complete blanks filled in and that any added items are formally modified into the contract; otherwise, disputes can arise over what is actually subject to revision.
Official Regulatory Text
As prescribed in 16.406 (a) , insert the following clause: Incentive Price Revision-Firm Target (Jan 2022) (a) General . The supplies or services identified in the Schedule as Items _______ [ Contracting Officer insert Schedule line item numbers ] are subject to price revision in accordance with this clause; provided, that in no event shall the total final price of these items exceed the ceiling price of ________ dollars ($ _____ ). Any supplies or services that are to be (1) ordered separately under, or otherwise added to, this contract and (2) subject to price revision in accordance with the terms of this clause shall be identified as such in a modification to this contract. (b) Definition . "Costs," as used in this clause, means allowable costs in accordance with part 31 of the Federal Acquisition Regulation (FAR) in effect on the date of this contract. (c) Data submission. (1) Within __________________ [ Contracting Officer insert number of days ] days after the end of the month in which the Contractor has delivered the last unit of supplies and completed the services specified by item number in paragraph (a) of this clause, the Contractor shall submit in the format of Table 15-1 , FAR 15.408 , or in any other form on which the parties agree- (i) A detailed statement of all costs incurred up to the end of that month in performing all work under the items; (ii) An estimate of costs of further performance, if any, that may be necessary to complete performance of all work under the items; (iii) A list of all residual inventory and an estimate of its value; and (iv) Any other relevant data that the Contracting Officer may reasonably require. (2) If the Contractor fails to submit the data required by paragraph (c)(1) of this clause within the time specified and it is later determined that the Government has overpaid the Contractor, the Contractor shall repay the excess to the Government immediately. Unless repaid within 30 days after the end of the data submittal period, the amount of the excess shall bear interest, computed from the date the data were due to the date of repayment, at the rate established in accordance with the Interest clause. (d) Price revision . Upon the Contracting Officer’s receipt of the data required by paragraph (c) of this clause, the Contracting Officer and the Contractor shall promptly establish the total final price of the items specified in (a) of this clause by applying to final negotiated cost an adjustment for profit or loss, as follows: (1) On the basis of the information required by paragraph (c) of this clause, together with any other pertinent information, the parties shall negotiate the total final cost incurred or to be incurred for supplies delivered (or services performed) and accepted by the Government and which are subject to price revision under this clause. (2) The total final price shall be established by applying to the total final negotiated cost an adjustment for profit or loss, as follows: (i) If the total final negotiated cost is equal to the total target cost, the adjustment is the total target profit. (ii) If the total final negotiated cost is greater than the total target cost, the adjustment is the total target profit, less ______ [ Contracting Officer insert percent ] percent of the amount by which the total final negotiated cost exceeds the total target cost. (iii) If the final negotiated cost is less than the total target cost, the adjustment is the total target profit plus _____ [ Contracting Officer insert percent ] percent of the amount by which the total final negotiated cost is less than the total target cost. (e) Contract modification . The total final price of the items specified in paragraph (a) of this clause shall be evidenced by a modification to this contract, signed by the Contractor and the Contracting Officer. This price shall not be subject to revision, notwithstanding any changes in the cost of performing the contract, except to the extent that- (1) The parties may agree in writing, before the determination of total final price, to exclude specific elements of cost from this price and to a procedure for subsequent disposition of those elements; and (2) Adjustments or credits are explicitly permitted or required by this or any other clause in this contract. (f) Adjusting billing prices. (1) Pending execution of the contract modification (see paragraph (e) of this clause), the Contractor shall submit invoices or vouchers in accordance with billing prices as provided in this paragraph. The billing prices shall be the target prices shown in this contract. (2) If at any time it appears from information provided by the contractor under paragraph (g)(2) of this clause that the then-current billing prices will be substantially greater than the estimated final prices, the parties shall negotiate a reduction in the billing prices. Similarly, the parties may negotiate an increase in billing prices by any or all of the difference between the target prices and the ceiling price, upon the Contractor’s submission of factual data showing that final cost under this contract will be substantially greater than the target cost. (3) Any billing price adjustment shall be reflected in a contract modification and shall not affect the determination of the total final price under paragraph (d) of this clause. After the contract modification establishing the total final price is executed, the total amount paid or to be paid on all invoices or vouchers shall be adjusted to reflect the total final price, and any resulting additional payments, refunds, or credits shall be made promptly. (g) Quarterly limitation on payments statement . This paragraph (g) shall apply until final price revision under this contract has been completed. (1) Within 45 days after the end of each quarter of the Contractor’s fiscal year in which a delivery is first made (or services are first performed) and accepted by the Government under this contract, and for each quarter thereafter, the Contractor shall submit to the contract administration office (with a copy to the contracting office and the cognizant contract auditor) a statement, cumulative from the beginning of the contract, showing- (i) The total contract price of all supplies delivered (or services performed) and accepted by the Government and for which final prices have been established; (ii) The total costs (estimated to the extent necessary) reasonably incurred for, and properly allocable solely to, the supplies delivered (or services performed) and accepted by the Government and for which final prices have not been established; (iii) The portion of the total target profit (used in establishing the initial contract price or agreed to for the purpose of this paragraph (g)) that is in direct proportion to the supplies delivered (or services performed) and accepted by the Government and for which final prices have not been established-increased or decreased in accordance with paragraph (d)(2) of this clause, when the amount stated under subdivision (g)(1)(ii) of this clause differs from the aggregate target costs of the supplies or services; and (iv) The total amount of all invoices or vouchers for supplies delivered (or services performed) and accepted by the Government (including amounts applied or to be applied to liquidate progress payments). (2) Notwithstanding any provision of this contract authorizing greater payments, if on any quarterly statement the amount under subdivision (g)(1)(iv) of this clause exceeds the sum due the Contractor, as computed in accordance with subdivisions (g)(1)(i), (ii), and (iii) of this clause, the Contractor shall immediately refund or credit to the Government the amount of this excess. The Contractor may, when appropriate, reduce this refund or credit by the amount of previous refunds or credits effected under this clause. If any portion of the excess has been applied to the liquidation of progress payments, then that portion may, instead of being refunded, be added to the unliquidated progress payment account consistent with the Progress Payments clause. The Contractor shall provide complete details to support any claimed reductions in refunds. (3) If the Contractor fails to submit the quarterly statement within 45 days after the end of each quarter and it is later determined that the Government has overpaid the Contractor, the Contractor shall repay the excess to the Government immediately. Unless repaid within 30 days after the end of the statement submittal period, the amount of the excess shall bear interest, computed from the date the quarterly statement was due to the date of repayment, at the rate established in accordance with the Interest clause. (h) Subcontracts . No subcontract placed under this contract may provide for payment on a cost-plus-a-percentage-of-cost basis. (i) Disagreements . If the Contractor and the Contracting Officer fail to agree upon the total final price within 60 days (or within such other period as the Contracting Officer may specify) after the date on which the data required by paragraph (c) of this clause are to be submitted, the Contracting Officer shall promptly issue a decision in accordance with the Disputes clause. (j) Termination . If this contract is terminated before the total final price is established, prices of supplies or services subject to price revision shall be established in accordance with this clause for (1) completed supplies and services accepted by the Government and (2) those supplies and services not terminated under a partial termination. All other elements of the termination shall be resolved in accordance with other applicable clauses of this contract. (k) Equitable adjustment under other clauses . If an equitable adjustment in the contract price is made under any other clause of this contract before the total final price is established, the adjustment shall be made in the total target cost and may be made in the maximum dollar limit on the total final price, the total target profit, or both. If the adjustment is made after the total final price is established, only the total final price shall be adjusted. (l) Exclusion from target price and total final price . If any clause of this contract provides that the contract price does not or will not include an amount for a specific purpose, then neither any target price nor the total final price includes or will include any amount for that purpose. (m) Separate reimbursement . If any clause of this contract expressly provides that the cost of performance of an obligation shall be at Government expense, that expense shall not be included in any target price or in the total final price, but shall be reimbursed separately. (n) Taxes . As used in the Federal, State, and Local Taxes clause or in any other clause that provides for certain taxes or duties to be included in, or excluded from, the contract price, the term "contract price" includes the total target price or, if it has been established, the total final price. When any of these clauses requires that the contract price be increased or decreased as a result of changes in the obligation of the Contractor to pay or bear the burden of certain taxes or duties, the increase or decrease shall be made in the total target price or, if it has been established, in the total final price, so that it will not affect the Contractor’s profit or loss on this contract. (End of clause) Alternate I (Apr 1984) . As prescribed in 16.406 (a), add the following paragraph (o) to the basic clause: (o) Provisioning and options . Parts, other supplies, or services that are to be furnished under this contract on the basis of a provisioning document or Government option shall be subject to price revision in accordance with this clause. Any prices established for these parts, other supplies, or services under a provisioning document or Government option shall be treated as target prices. Target cost and profit covering these parts, other supplies, or services may be established separately, in the aggregate, or in any combination, as the parties may agree.