Cost-Plus Award Fee Contract (CPAF)

A Cost-Plus Award Fee (CPAF) contract reimburses all allowable costs plus a base fee, and allows the government to award an additional discretionary fee based on its subjective evaluation of the contractor's overall performance quality during each evaluation period.

What is a Cost-Plus Award Fee Contract?

CPAF is defined in FAR 16.305. It is used when the government wants to incentivize contractor excellence across multiple performance dimensions, quality, schedule, cost control, management responsiveness, and innovation, in a way that a purely formula-based incentive cannot capture.

CPAF structure:

• Cost reimbursement: all allowable costs are reimbursed as incurred
• Base fee: a fixed dollar amount earned regardless of performance (often 0-3% of estimated cost; may be zero)
• Award fee pool: a pool of additional dollars available each evaluation period
• Award fee evaluation: the Fee Determining Official (FDO) evaluates contractor performance at the end of each evaluation period and awards between 0% and 100% of the pool
• No legal right to the full award fee: unlike the base fee, the award fee is discretionary; the contractor cannot protest an award fee determination

Award fee evaluation periods are typically quarterly or semi-annual. The government assesses performance against criteria published in the Award Fee Plan, which defines what constitutes excellent, good, satisfactory, and marginal performance. The FDO's determination of the award fee percentage is final, courts have consistently held that CPAF fee determinations are within the government's sole discretion.

The subjective nature of CPAF incentivizes relationship management and visibility into program excellence: contractors who communicate proactively, document achievements, and manage the award fee evaluation process effectively consistently earn higher award fees than those who do the same work silently.

Why CPAF matters for government contractors

CPAF is common in large NASA, DoE, and DoD operations and maintenance contracts where the government wants broad performance incentives rather than a narrow cost formula. Managing a CPAF contract requires dedicated effort to the award fee process: documenting accomplishments against the award fee criteria throughout the period, preparing a self-assessment that tells a compelling performance story, and actively briefing the Fee Determining Official before the evaluation. Companies that treat the award fee evaluation as an administrative afterthought routinely earn 60-70% of available fee; companies that invest in the process earn 85-95%.

Example

NASA awards a CPAF contract for launch range operations. The award fee pool is $5M per year, with evaluation periods every six months ($2.5M per period). The Award Fee Plan rates performance on: Safety (30%), Mission Success (25%), Customer Service (25%), and Resource Management (20%). After the first six-month period, NASA's Fee Determining Official evaluates: Safety, Excellent (100%); Mission Success, Very Good (85%); Customer Service, Good (75%); Resource Management, Very Good (85%). Weighted average: 88% of pool. Award fee for period 1: $2.5M × 88% = $2.2M out of $2.5M available.

Frequently Asked Questions

Can a contractor protest an award fee determination?

No. The FAR explicitly states that award fee determinations are within the government's sole discretion and are not subject to the Disputes clause or to appeal under the Contract Disputes Act. The contractor's only recourse is to argue that the government acted in bad faith, which is an extremely high bar. This is why understanding the award fee criteria and managing the evaluation process proactively is so important.

What is the difference between the base fee and the award fee?

The base fee is earned regardless of performance, it is the minimum compensation for performing contract work. The award fee is performance-based and discretionary. Some contracts have a zero base fee, meaning the contractor earns nothing if performance is rated marginal or unsatisfactory. The total potential fee (base + maximum award fee) must be fair and reasonable based on the contract work.

How does the government document CPAF performance evaluations?

Through the Award Fee Evaluation Report prepared by the Contracting Officer's Representative and signed by the Fee Determining Official at the end of each evaluation period. These reports become part of the contract file and may be referenced in CPARS evaluations. Contractors receive a copy of their evaluation report.

How does CPAF affect future contract competition?

Award fee earned percentages are often a major input to past performance evaluations. A contractor with a history of earning 90%+ of available award fees signals superior performance. A contractor who consistently earned only 60-70% raises questions. Past award fee records can be requested from references and factored into proposal evaluations.