CPIF

CPIF contracts are authorized under FAR 16.304 and add a structured incentive layer on top of standard cost reimbursement. Unlike CPFF — where the fee is fixed regardless of performance — CPIF rewards contractors who come in under target cost and penalizes those who overrun it, up to defined limits.

Key CPIF structural elements:

• Target cost — the negotiated expected cost of performance
• Target fee — the fee the contractor earns if actual cost equals target cost
• Minimum fee / Maximum fee — the floor and ceiling on fee regardless of cost performance
• Share ratio — how cost savings and overruns are split (e.g., 80/20 means government absorbs 80% of overrun, contractor absorbs 20%)

Example: Target cost $10M, target fee $800K, share ratio 80/20, min fee $200K, max fee $1.4M. If the contractor delivers for $9M (saves $1M), the contractor's fee increases by $200K (20% share). If costs hit $12M, the contractor's fee decreases by $400K — but not below the minimum.

CPIF is less common than CPFF because the share-line negotiation is complex and requires sophisticated cost estimating on both sides. It is most often seen in large defense production programs and systems development where the government wants to drive cost efficiency without the full risk transfer of FFP.