Cost-Plus-Fixed-Fee (CPFF) Contract

What is a Cost-Plus-Fixed-Fee Contract?

A cost-plus-fixed-fee contract, often abbreviated as CPFF, is a type of cost-reimbursement contract where the government reimburses the contractor for allowable costs and pays an additional fixed fee. The fixed fee is negotiated at the start and does not change with actual costs incurred.

When asked about “cost plus fixed fee meaning” or “cost-plus-fixed-fee contract definition,” the answer is that this structure limits contractor profit to the agreed-upon fee, while the government assumes more of the financial risk.

CPFF Contract Example

For example, in a cost plus fixed fee contract sample, if the government agrees to reimburse $1 million in costs plus a $100,000 fixed fee, the contractor will receive $1.1 million total—even if the actual costs rise to $1.2 million. The fixed fee does not increase with costs, unlike percentage-based fee structures.

This makes CPFF contracts attractive for projects with uncertain scope or costs, such as research and development.

Cost-Plus-Fixed-Fee Contract Clauses

A cost plus fixed fee contract clause outlines how costs are reimbursed, defines allowable expenses, and specifies the fixed fee. FAR Part 16 governs cost-reimbursement contracts, including CPFF. Contractors must carefully manage costs, document expenses, and comply with federal acquisition regulations.

Advantages and Disadvantages

Advantages:

• Reduces financial risk for contractors since costs are reimbursed.

• Useful for projects with undefined or high-risk requirements.

• Encourages contractor participation in complex or experimental work.
  
  

Disadvantages:

• Less incentive for contractors to control costs compared to firm-fixed-price contracts.

• Requires more government oversight and auditing.

• Contractor profit is limited to the fixed fee, regardless of performance.
  
  

Understanding the cost plus fixed fee contract advantages and disadvantages helps agencies and contractors decide when this contract type is appropriate.

Why CPFF Contracts Matter in GovCon

• They support projects where scope and costs are uncertain.

• They balance risk by reimbursing costs but capping profit with a fixed fee.

• They require careful contract management and compliance with FAR clauses.

• They are commonly used in R&D and early-phase projects where innovation is valued over cost predictability.
  
  

Takeaways

The cost-plus-fixed-fee (CPFF) contract reimburses contractors for allowable costs while providing a set fee for profit. From understanding the definition and clauses to evaluating advantages and disadvantages, CPFF contracts play an essential role in government contracting, especially for high-risk or research-focused projects.

FAQs

Q1. What is a cost-plus-fixed-fee contract?
A cost-plus-fixed-fee (CPFF) contract reimburses the contractor for allowable costs and provides a negotiated fixed fee as profit. The fee does not change even if actual costs increase.

Q2. What is an example of a CPFF contract?
In a CPFF contract, if the government agrees to reimburse $1 million in costs plus a $100,000 fixed fee, the contractor receives $1.1 million total. If costs rise, the fixed fee remains the same.

Q3. What are the advantages and disadvantages of CPFF contracts?
Advantages include reduced financial risk for contractors and flexibility for high-risk projects. Disadvantages include less cost control incentive, higher government oversight, and capped profit potential.