CPFF

Cost Plus Fixed Fee (CPFF) is a type of cost-reimbursement contract used primarily in government and other large programs when the scope or cost of work is uncertain. Under CPFF, the buyer reimburses the contractor for all allowable and allocable costs incurred in performing the contract, plus a predetermined fixed fee that represents the contractor’s profit. The fixed fee is generally set at award and remains the same regardless of the final cost outcome, though some arrangements allow for later redetermination of the fee based on performance or milestones.

Key characteristics include the emphasis on cost allowability and proper cost accounting. The contractor must maintain cost records and submit regular cost proposals, which are subject to government review and audits to ensure costs are reasonable, allocable, and compliant with applicable regulations (for example, the cost principles in the relevant contract framework). Payment is typically made as costs are incurred, with the fixed fee paid in accordance with the contract’s payment terms.

CPFF contracts transfer more cost uncertainty to the buyer than fixed-price arrangements, while providing price stability for the contractor in terms of profit. They are commonly used for research, development, or complex procurement where technical requirements are evolving and precise cost estimates are not feasible. The approach requires strong contract oversight and robust cost-reporting controls, along with clear criteria for allowability, audit rights, and any potential adjustments to the fixed fee or cost ceiling. Related variants include CPFF with redeterminable fees and, less commonly, CPFF with incentive-like features.