You know cost plus fixed fee contracts protect you from cost overruns on uncertain R&D work, but you're fuzzy on how the fixed fee gets paid, whether completion or term form makes more sense for your project, and what triggers a fee adjustment. The government uses CPFF when neither party can predict costs accurately, but that flexibility comes with accounting requirements that trip up contractors who aren't prepared. Let's break down the fee calculations, billing mechanics, and compliance infrastructure you need to manage CPFF work successfully without leaving money on the table or failing a DCAA audit.

TL;DR

• CPFF contracts reimburse all allowable costs plus a fixed fee (capped at 15% for R&D, 10% for other work).

• You bear zero cost risk but gain no profit from savings, making CPFF ideal for high-uncertainty work.

• Completion form requires specific deliverables; term form pays for level of effort over time.

• Invoicing demands rigorous cost tracking and FAR Part 31 compliance with detailed documentation.

• GovDash centralizes CPFF contract data and automates past performance tracking for future proposals.

What Is a Cost Plus Fixed Fee Contract

A Cost Plus Fixed Fee (CPFF) contract pays contractors for all allowable costs incurred during performance, plus a fixed fee negotiated at award. The fee stays constant regardless of actual costs.

Governed by FAR 16.306, CPFF contracts are used when cost estimation is difficult due to uncertainty, research and development, or technical complexity. The fee is based on estimated cost and anticipated effort at contract award and never changes during performance.

This structure shifts cost risk to the government while contractors bear performance risk, making CPFF attractive for developmental efforts where neither party can predict final costs accurately.

How Cost Plus Fixed Fee Contracts Work

Under CPFF contracts, contractors invoice two components: reimbursable costs and the fixed fee. Each billing period, you submit actual costs with documentation proving compliance with FAR Part 31 cost principles.

Allowable costs must be reasonable, allocable, and meet Cost Accounting Standards. The government reimburses validated costs. The fixed fee is paid proportionally across the performance period.

The fee adjusts only if the government modifies scope. Otherwise, it stays constant whether costs run over or under estimate.

CPFF Completion Form vs Term Form

CPFF contracts come in two forms: completion and term. The completion form defines a specific deliverable or end result. You receive the full fee only after delivering the required outcome within estimated costs, even if it takes longer than expected.

The term form obligates a level of effort over a defined period rather than a specific outcome. You provide specified services for the contract duration and earn the fee based on satisfactory performance, regardless of tangible deliverables.

Completion contracts work best when you can define scope clearly. Term contracts suit open-ended research or support work where outcomes are unpredictable.

When to Use Cost Plus Fixed Fee Contracts

CPFF contracts work best when neither party can reasonably predict costs. The government uses this type for early-stage research, exploratory studies, or preliminary investigations where effort levels remain undefined upfront.

Development and testing projects suit CPFF when technical unknowns make incentive structures impractical. If you can't tie performance metrics to outcomes or the scope requires experimentation, CPFF provides flexibility without penalizing discovery work.

High technical uncertainty is the common thread. When work involves unproven methods, new tech, or evolving requirements, CPFF protects both sides from cost overrun disputes while maintaining contractor motivation through the fixed fee.

Contracting officers avoid CPFF when scope supports firm-fixed-price or when measurable milestones enable cost-plus-incentive-fee structures.

Cost Plus Fixed Fee Contract Advantages and Disadvantages

CPFF contracts offer clear tradeoffs. For contractors, you recover all allowable costs, eliminating risk of overruns on uncertain work. The fixed fee guarantees compensation regardless of efficiency, enabling execution of exploratory or high-risk technical work. Flexibility to adapt to changing requirements supports iterative R&D cycles.

Contractor Disadvantages

CPFF demands accounting infrastructure that tracks costs by contract, satisfies Cost Accounting Standards, and withstands Defense Contract Audit Agency scrutiny. Smaller contractors often struggle with compliance overhead. The fixed fee caps profit potential. Exceptional performance generates no additional revenue.

Government Perspective

For agencies, CPFF enables access to contractors who won't accept firm-fixed-price risk on developmental efforts. The downside: reduced cost discipline. Contractors lack financial incentive to minimize expenses since all allowable costs are reimbursed, requiring substantial government oversight.

FAR 16.306 Fee Limitations and Requirements

FAR 16.306 sets statutory caps on CPFF fees. For experimental, developmental, or research work, the fixed fee cannot exceed 15 percent of estimated cost. All other CPFF contracts are limited to 10 percent of estimated cost.

These percentages apply to the estimated cost at award, not actual incurred costs. Before awarding CPFF contracts, contracting officers verify your accounting system segregates costs by contract and supports Defense Contract Audit Agency audits.

Cost Plus Fixed Fee Level of Effort Contracts

Level of effort (LOE) CPFF contracts require contractors to provide a specified quantity of professional or technical labor over a defined period rather than deliver concrete end products. You fulfill the contract by providing the agreed level of effort with qualified personnel, measured by effort expended.

These contracts work best for situations with extreme technical uncertainty where defining success criteria proves impossible at award, such as early-stage research, feasibility studies, or advisory services. The government assumes nearly all cost and performance risk. You receive the fixed fee for satisfactory effort regardless of outcomes, making LOE the most contractor-favorable cost-reimbursement type.

CPFF Contract Calculation and Fee Structure

Calculating CPFF contract value begins with estimated cost: direct labor, materials, subcontracts, and indirect costs. Apply approved overhead and G&A rates to build fully burdened estimates. Add the fixed fee within statutory limits (15% for R&D, 10% for other work).

Total contract value equals estimated cost plus fixed fee. On a $1 million research estimate, the maximum fee is $150,000, creating a $1.15 million ceiling. Scope modifications trigger proportional fee adjustments when the government adds or reduces work.

Cost Plus Fixed Fee vs Firm Fixed Price

Firm-fixed-price contracts transfer all cost risk to contractors. You agree to deliver for a set price regardless of actual expenses. If costs exceed estimates, you absorb losses. If you finish under budget, you keep the savings.

CPFF reverses this. The government reimburses all allowable costs while you earn a fixed fee. You carry zero cost risk but gain no upside from cost savings.

FFP requires minimal oversight and defined requirements. CPFF demands accounting systems that satisfy Defense Contract Audit Agency standards. Agencies default to FFP when scope is clear. Choose CPFF opportunities when technical uncertainty justifies shifting cost risk.

Cost Plus Fixed Fee vs Time and Materials

Time and materials contracts reimburse direct labor at negotiated hourly rates that include profit markup, plus materials at cost. T&M builds contractor profit into the hourly billing rate itself.

CPFF separates these components. You bill actual labor costs without markup, then receive a distinct fixed fee for profit. Both contract types accommodate scope uncertainty, but T&M profit grows with hours expended while CPFF profit stays constant regardless of effort.

Regulators treat T&M as cost-reimbursement contracts for risk purposes, requiring similar oversight as CPFF.

CPFF Contract Invoicing Best Practices

CPFF invoices need two line items: reimbursable costs and the fixed fee. Break costs into direct labor by category, overhead at approved rates, materials, subcontractor charges, and other direct costs with current and cumulative totals.

Support every cost with documentation. Labor requires approved timesheets, materials need receipts and purchase orders, and subcontractor invoices must include backup. Track cumulative costs against the ceiling, showing total costs to date, remaining budget, and estimated completion cost to help contracting officers catch overruns early and prevent overbilling.

Calculate fee based on your payment structure. Most CPFF contracts pay fee proportionally to costs incurred.

Cost Reimbursement Contract Family

CPFF belongs to the cost-reimbursement contract family, which includes several variations:

Cost contracts reimburse allowable costs without any fee, used for research performed by nonprofit organizations or educational institutions.

Cost-sharing contracts split costs between government and contractor, requiring you to absorb a portion of expenses when your work generates substantial commercial benefits like intellectual property rights or technical knowledge.

Cost-plus-incentive-fee (CPIF) contracts establish target costs and fees, then adjust contractor profit based on actual performance against targets. You earn higher fees by reducing costs below target, creating financial motivation absent in CPFF.

Cost-plus-award-fee (CPAF) contracts reserve a fee pool awarded subjectively based on performance evaluation criteria. Unlike CPFF's guaranteed fee, CPAF ties profit to excellence.

Managing CPFF Contracts for Success

Successful CPFF management requires accounting systems that segregate costs by contract and meet Cost Accounting Standards. Track expenditures against the estimated cost ceiling weekly to prevent overruns.

Maintain detailed records proving cost allowability under FAR Part 31, including timesheets, receipts, and subcontractor invoices. Regular communication with your contracting officer prevents surprises during Defense Contract Audit Agency reviews.

Monitor burn rate closely. When costs approach 75% of the ceiling, notify your contracting officer immediately to avoid fee withholding under the Allowable Cost and Payment clause.

Managing CPFF Contracts with GovDash

GovDash Contract Cloud centralizes CPFF work from capture through performance. GovDash Pricer extracts labor categories and pricing parameters directly from solicitations, connects LCATs to CLINs, and runs interactive pricing drills to model indirect rates, wrap structures, and escalation factors. You control who sees sensitive pricing data while keeping the team aligned on scope.

When you win CPFF work, contract data flows into past performance records. Future proposals automatically pull relevant cost-reimbursement experience, and the knowledge management system stores accounting documentation and invoice templates for instant access.

Final Thoughts on CPFF Contract Performance

Your success on cost plus fixed fee contracts depends less on proposal strength and more on back-office execution once you win. Cost tracking, compliant invoicing, and proactive ceiling management separate contractors who thrive on CPFF work from those who struggle through Defense Contract Audit Agency reviews. When technical uncertainty makes other contract types impractical, CPFF gives you runway to deliver innovation without cost overrun penalties. Book a demo to see how GovDash organizes CPFF documentation and automates burn rate monitoring across your portfolio.

FAQs

What is the main difference between CPFF completion and term contracts?

CPFF completion requires delivering a specific end product within estimated costs to earn the full fee, while CPFF term obligates a level of effort over a set period and pays the fee for satisfactory performance regardless of deliverables.

How is the fixed fee calculated on a cost plus fixed fee contract?

The fee is calculated as a percentage of estimated cost at award: up to 15% for experimental, developmental, or research work, and up to 10% for all other CPFF contracts, based on the initial cost estimate, not actual costs.

When should contractors pursue CPFF opportunities instead of firm-fixed-price?

Pursue CPFF when technical uncertainty makes cost estimation unreliable, such as early-stage research, exploratory development, or projects with evolving requirements where neither you nor the government can predict final costs accurately.

What accounting requirements must contractors meet for CPFF contracts?

You need systems that segregate costs by contract, satisfy Cost Accounting Standards, track expenditures against cost ceilings, and withstand Defense Contract Audit Agency scrutiny with detailed documentation proving all costs are allowable under FAR Part 31.

How does CPFF differ from time and materials contracts?

T&M contracts build profit into hourly labor rates that grow with hours worked, while CPFF separates reimbursable costs from a fixed fee that stays constant regardless of effort or hours expended during performance.