CPFF

Under FAR Part 16.306, CPFF contracts shift cost risk to the government — the contractor is reimbursed for allowable, allocable, and reasonable costs regardless of overruns. The fixed fee (typically 6–10% of estimated cost) does not change as actual costs fluctuate, which distinguishes CPFF from incentive-fee arrangements.

When agencies use CPFF:

• Basic and applied research (R&D) where outcomes are uncertain
• Complex defense systems with high technical risk
• Studies, analyses, and engineering support services
• Any work where scope cannot be defined well enough for FFP or T&M

Allowable vs. unallowable costs: Not all costs can be billed to the government. FAR Part 31 defines allowable costs. Common unallowable costs include entertainment, lobbying, advertising, and fines. Contractors must have a DCAA-compliant accounting system to segregate allowable from unallowable costs before pursuing cost-type work.

Fee structure: The fixed fee is negotiated before award and does not increase if costs grow. FAR caps CPFF fees at 15% of estimated cost for research and 10% for other work.

Incurred cost submissions: Contractors must submit annual Incurred Cost Proposals (ICPs) to DCAA within six months of fiscal year end, reconciling estimated costs against actual costs. Late or inadequate submissions can trigger audits and penalties.

CPFF is table stakes for serious defense and R&D contractors. Getting your accounting system DCAA-adequate before pursuing this work is non-negotiable.