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Are FP w/ incentive and FP w/ award fee type contracts allowable under FAR Part 12?

FAR Part 12.207 states that FFP, FFP with EPA contracts and time and materials contracts are allowable.

However, FAR 12.207(c )(3)d states "The contract types authorized by this subpart may be used in conjunction with an award fee and performance or delivery incentives when the award fee or incentive is based solely on factors other than cost (see 16.202-1 and 16.203-1)." Does this mean that FP with incentive and FP award fee type contracts are also allowable under FAR part 12? What exactly does this mean?

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Guest Vern Edwards

In a commercial item contract under FAR Part 12 you can use an FPI formula type incentive with a performance or delivery incentive, but not a cost incentive, or an FFP with award fee as long as you don't have a cost incentive. In short, you can use any incentive that does not entail compliance with the cost principles in FAR Part 31 and that does not require the contract to submit to incurred cost audits.

In short, under a commercial item contract you can adjust the price based on performance or delivery, but not based on incurred cost.

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Note that the pricing arrangements Vern describes are technically firm-fixed-price contracts. From FAR 16.202-1:

The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
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