Contract types and vehicles
What is a cost-plus-fixed-fee contract?
Cost-Plus-Fixed-Fee contract
A cost-plus-fixed-fee contract reimburses the contractor's allowable costs and pays a negotiated fee that is fixed at the outset and does not vary with actual cost, though it may be adjusted if the work itself changes.
Also written as: cost plus fixed fee, cost reimbursement contract, CPFF meaning.
FAR 16.306 describes CPFF as a cost-reimbursement contract paying a fixed fee negotiated at inception. Because the fee does not rise with cost, the contractor has no direct incentive to spend more — but it has only a minimal incentive to control cost either, which is why the FAR restricts cost-reimbursement contracts to circumstances where uncertainties prevent estimating cost with enough accuracy to use a fixed price.
The entry barrier is accounting, not capability. FAR 16.301-3 permits a cost-reimbursement contract only when the contractor's accounting system is adequate for determining costs applicable to the contract, and appropriate government surveillance can be applied. In practice that means a compliant job-cost system, indirect rate structure and timekeeping discipline that most small firms do not have on day one.
For a growing services business this is the ceiling that eventually has to be broken — research, engineering support and large professional-services work is largely cost-reimbursement — but it is a deliberate investment, not something to attempt for a single opportunity.
What this means when you bid
You cannot win cost-reimbursement work without an accounting system the government finds adequate. Build that before you chase the contract, not after.
CPFF compared with the terms it gets confused with
CPFF vs Firm-fixed-price
FFP pays a price regardless of cost; CPFF pays allowable costs plus a fee fixed independently of them.
What Firm-fixed-pricemeans →Where this definition comes from
Federal contracting is one of the few fields where the authoritative answer is free, public and one click away. These are the sources this page is built from — go and read them.
- FAR 16.306→
Cost-plus-fixed-fee contracts.
- FAR 16.301-3→
Limitations on cost-reimbursement contracts.
This page explains a term in plain English and cites the authority it comes from. It is not legal advice, and the regulation governs where this page and the regulation differ.
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CPFF— common questions
- What is a cost-plus-fixed-fee contract?
- A cost-plus-fixed-fee contract reimburses the contractor's allowable costs and pays a negotiated fee that is fixed at the outset and does not vary with actual cost, though it may be adjusted if the work itself changes.
- What is the difference between CPFF and Firm-fixed-price?
- FFP pays a price regardless of cost; CPFF pays allowable costs plus a fee fixed independently of them.
- Why does a cost-plus-fixed-fee contract matter when you are bidding?
- You cannot win cost-reimbursement work without an accounting system the government finds adequate. Build that before you chase the contract, not after.
Related terms
- Firm-fixed-price — Firm-Fixed-Price contract (FFP)
- Time-and-materials — Time-and-Materials contract (T&M)
- CPARS — Contractor Performance Assessment Reporting System