Diff between Cost Plus Award Fee and Cost Plus Incentive Fee Contracts
Both contract types are cost reimbursable. One has an Award Fee and the other an Incentive Fee. They are very similar on the surface. Both have their own applications, so its not easy to tell which is most commonly used. The answer to that is "it depends".
CPAF
The award fee is usually based on a subjective evaluation of some component of the work. It is also not usually subject to dispute. There is a performance portion of the contract which describes the area of work to be evaluated, the weighting of importance (if any), and the amount of the fee that can be earned each contract period. This contract works best for R&D work where quality is the primary objective. Also for any contract type where the results cannot be objectively measured.
CPIF
The incentive fee is usually based on objective criteria (often cost-based) that are included in the contract. When cost based, every $ over budget means a greater loss of incentive fee and every $ under budget means a greater portion of the incentive fee is earned. The incentive fee can be based on any criteria such as cost schedule, technical goals (e.g. ship speed), or delivery/schedule.
Both contract types are cost reimbursable. One has an Award Fee and the other an Incentive Fee. They are very similar on the surface. Both have their own applications, so its not easy to tell which is most commonly used. The answer to that is "it depends".
CPAF
The award fee is usually based on a subjective evaluation of some component of the work. It is also not usually subject to dispute. There is a performance portion of the contract which describes the area of work to be evaluated, the weighting of importance (if any), and the amount of the fee that can be earned each contract period. This contract works best for R&D work where quality is the primary objective. Also for any contract type where the results cannot be objectively measured.
CPIF
The incentive fee is usually based on objective criteria (often cost-based) that are included in the contract. When cost based, every $ over budget means a greater loss of incentive fee and every $ under budget means a greater portion of the incentive fee is earned. The incentive fee can be based on any criteria such as cost schedule, technical goals (e.g. ship speed), or delivery/schedule.
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