Explore BrainMass

Fixed-Price and Cost-Reimbursement Contracts

What are the main concepts behind cost and cost reimburse contracts including CPFF, CPAF, CPIF types?

Solution Preview

The contract types used by the U.S. Federal Government fall into two categories: fixed-price and cost/cost-reimbursement. Common fixed price contracts include Firm-Fixed-Price (FFP), Fixed-Price Incentive (FPI), and Fixed-Price with Award-Fee (FPAF). These provide for a price which normally is not subject to adjustment, compelling the contractor to provide a product or complete a specific project for a pre-set price.

Cost/cost-reimbursement contracts are more flexible for the contractor. These include Cost-No-Fee (CNF), Cost-Plus-Fixed-Fee (CPFF), Cost-Plus-Award-Fee (CPAF), and Cost-Plus-Incentive-Fee (CPIF). Cost/cost-reimbursement contracts provide payments (cost reimbursements) to the contractor for all legitimate costs incurred in the course of completing the contract, along with a fee representing contractor profit (except with CNF). A cost-reimbursable contract gives the project flexibility to redirect a contractor whenever the scope of work cannot be precisely known and defined at the start and needs to be altered, or when high risks may exist in the effort.

Cost-No-Fee (CNF) - In cost-no-fee contracts, sometimes simply called cost contracts, ...