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Mayonayze

Cost Plus Fixed Fee - Fee Pool

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I did a quick search and nothing definitive came back, so if there is a thread where this is addressed, please direct me to it.

The question is this: if i find ways to reduce cost on a CPFF contract, is my fee pool is diminished by the savings?

For example:

I esimtate the cost of work to be $10M. I bid a FF of 5%. My fee pool should be set at $500,000. If my EAC changes to $9M, does my fee pool also shrink to $450,000?

It had been my understanding that if you incurred cost in excess of your estimate, then your effective fee % erodes because you can never capture more fee than was set aside in your initial fee pool. however, if you were able to deliver the work at a lower cost, you enjoyed a higher effective fee % as you still collect your original fee pool against a lower cost base.

TIA!

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The question is this: if i find ways to reduce cost on a CPFF contract, is my fee pool is diminished by the savings?

For example:

I esimtate the cost of work to be $10M. I bid a FF of 5%. My fee pool should be set at $500,000. If my EAC changes to $9M, does my fee pool also shrink to $450,000?

The amount of the "fee" will not be diminished or shrink if you incur costs less than the orignally estimated cost for the scope of the contract. What do you mean by "fee pool"?

16.306 -- Cost-Plus-Fixed-Fee Contracts.

(a) Description. A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract. This contract type permits contracting for efforts that might otherwise present too great a risk to contractors, but it provides the contractor only a minimum incentive to control costs.

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Your concern, if it were true, would result in a purposely designed disincentive for contractors to save taxpayer money. True, the CPFFtype contract doesn't incentivize a contractor to save money but it doesn't deliberately punish the firm for saving money either. Most incentive programs for reducing costs involve some type of carrot that would not reduce fee (e.g., Value Engineering) or that would provide the contractor an award fee or some share of the cost savings.

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Concur with Joel - -

Mayo - - as to "Fee pool" - - are you sure you don't have a Cost Plus Award Fee type of contract? There is not a "fee pool" in a CPFF contract action.

If the action were to be a CPFF task/delivery order under an IDIQ/Requirements scenario, the "Fixed Fee" would also depend on LOE or Term scenario of the task order as to potential reduction as well, wouldn't it.

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Guest Vern Edwards

Mayo, if your fee were to be reduced the way you fear, wouldn't that result in a cost plus percentage of cost contract?

No, that would not result in a cost PLUS a percentage of cost contract. It would result in a cost minus a percentage of cost contract (which is not illegal).

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Mayo, for the second time, please explain what a "fee pool" is on a cost plus fixed fee contract. Thanks.

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Guest Vern Edwards

Why ask him to explain? He simply used the term improperly, that's all. Besides, even if the contract were CPAF and not CPFF, as he said initiatlly, the "fee pool" ordinarily would not be reducible just because he underran the estimated cost.

Faulty usage of official terms is a plague on our business.

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Why ask him to explain? He simply used the term improperly, that's all. Besides, even if the contract were CPAF and not CPFF, as he said initiatlly, the "fee pool" ordinarily would not be reducible just because he underran the estimated cost.

Faulty usage of official terms is a plague on our business.

that's my bad! as a program finance guy, i have learned the bad habit of referring to all cost type fee in EAC speak, as the 'pool', or what is the max we can expect earn in real dollars; vice percentage.

Fee pile. Expected fee dollars. Pile of bones. What have you...

Thanks for all the answers!!! One more for additional clarification on the billing side (and i know this will vary from contract to contract) but if the monthly billing includes the 5% fee as a percentage of cost, then i would expect to do a true-up at the end of the contract option period to capture the unbilled fee. In the example from my initial post, if i underran cost by $1M and had only invoiced for $450k of fee to date, i would bill for an additional $50k of fee in the final invoice to ensure that i collect the $500k of fee i was entitled to. Or would i be better served adjusting my invoices month to month as the ETC changes to minimize a true-up situation at the end?

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that's my bad! as a program finance guy, i have learned the bad habit of referring to all cost type fee in EAC speak, as the 'pool', or what is the max we can expect earn in real dollars; vice percentage.

Fee pile. Expected fee dollars. Pile of bones. What have you...

Thanks for all the answers!!! One more for additional clarification on the billing side (and i know this will vary from contract to contract) but if the monthly billing includes the 5% fee as a percentage of cost, then i would expect to do a true-up at the end of the contract option period to capture the unbilled fee. In the example from my initial post, if i underran cost by $1M and had only invoiced for $450k of fee to date, i would bill for an additional $50k of fee in the final invoice to ensure that i collect the $500k of fee i was entitled to. Or would i be better served adjusting my invoices month to month as the ETC changes to minimize a true-up situation at the end?

To be clear, i know that having my cash sooner is better, i simply ask from a compliance perspective and what is easier for the KO to cope with.

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Mayonayze,

See the contract clause at FAR 52.216-8, Fixed Fee. I suppose it is in your contract. It says your contract should already have terms on how fee payments will be handled.

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Mayonayze,

See the contract clause at FAR 52.216-8, Fixed Fee. I suppose it is in your contract. It says your contract should already have terms on how fee payments will be handled.

Thanks! The clause refers to 'the schedule'. I assume this is negotiated post award, bilaterally? What do you KO types typically prefer for a schedule construct on an LOE type CPFF where the effort may vary materially month to month?

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I think it is usually established pre-award.

It can be done any number of ways -- a fixed amount per month or all at the end or anything else. If I knew the LOE period was six months, with a total fee of $60, I might do $10 per month (well, less because of the reserve withholding requirement). Or, if there were milestones, I might say $20 upon achievement of <A> and $20 upon achievement of <B> and the remainder at the end (amenable to the fee withholding guidelines in the fixed fee clause). Some take what I see as the lazy way out and allow the contractor to bill based on incurred costs.

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