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12 - PROJECT PROCUREMENT MANAGEMENT

○ Cost Plus Fixed Fee Contracts (CPFF). The seller is reimbursed for all allowable costs for
performing the contract work, and receives a fixed-fee payment calculated as a percentage of
the initial estimated project costs. A fee is paid only for completed work and does not change
due to seller performance. Fee amounts do not change unless the project scope changes.
○ Cost Plus Incentive Fee Contracts (CPIF). The seller is reimbursed for all allowable costs for
performing the contract work and receives a predetermined incentive fee based upon achieving
certain performance objectives as set forth in the contract. In CPIF contracts, if the final costs
are less or greater than the original estimated costs, then both the buyer and seller share costs
from the departures based upon a prenegotiated cost-sharing formula, for example, an 80/20
split over/under target costs based on the actual performance of the seller.

○ Cost Plus Award Fee Contracts (CPAF). The seller is reimbursed for all legitimate costs, but
the majority of the fee is earned only based on the satisfaction of certain broad subjective
performance criteria defined and incorporated into the contract. The determination of fee is
based solely on the subjective determination of seller performance by the buyer, and is generally
not subject to appeals.

• time and Material contracts (t&M). Time and material contracts are a hybrid type of contractual
arrangement that contain aspects of both cost-reimbursable and fixed-price contracts. They are often
used for staff augmentation, acquisition of experts, and any outside support when a precise statement
of work cannot be quickly prescribed. These types of contracts resemble cost-reimbursable contracts in
that they can be left open ended and may be subject to a cost increase for the buyer. The full value of
the agreement and the exact quantity of items to be delivered may not be defined by the buyer at the
time of the contract award. Thus, T&M contracts can increase in contract value as if they were cost-
reimbursable contracts. Many organizations require not-to-exceed values and time limits placed in all
T&M contracts to prevent unlimited cost growth. Conversely, T&M contracts can also resemble fixed
unit price arrangements when certain parameters are specified in the contract. Unit labor or material
rates can be preset by the buyer and seller, including seller profit, when both parties agree on the values
for specific resource categories, such as senior engineers at specified rates per hour, or categories of
materials at specified rates per unit.

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