Cost-Plus-Fixed-Fee (CPFF)

Definition

Cost-Plus-Fixed-Fee (CPFF) is a cost-reimbursement contract type in which the contractor is reimbursed for allowable incurred costs and receives a fixed fee negotiated at the time of award. The fee does not vary with actual costs (except in limited circumstances). CPFF is common on R&D, advisory, and engineering services where requirements are uncertain. Two variants exist: 'completion' (deliverable-focused) and 'term' (level-of-effort focused). CPFF requires an approved accounting system capable of tracking costs by CLIN and complying with FAR Part 31 cost principles.

Why It Matters

CPFF shifts cost risk to the government, which is useful when the scope is genuinely ill-defined. But it imposes substantial administrative burden on the contractor: DCAA-compliant timekeeping, indirect rate management, monthly public vouchering, and disclosure of cost data. Small firms pursuing CPFF work should ensure their accounting system is adequate before bidding, or plan to reach that posture before award.

Example

A research firm wins a $12M CPFF contract for artificial-intelligence algorithm development. Actual costs run $11.3M. The contractor is reimbursed $11.3M plus the $900K fixed fee, for total revenue of $12.2M. Had costs overrun to $14M, the fee would remain $900K but the government would reimburse all allowable costs up to the funding limit.

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