Section 27-2408. FIXED-PRICE INCENTIVE CONTRACTS

 

2408.1A fixed-price incentive contract may be used when the following factors apply:

 

(a)A firm-fixed-price contract is not suitable;

 

(b)The nature of the goods or services being procured and other circumstances of the procurement are such that the contractor's assumption of a degree of cost responsibility will provide a positive profit incentive for effective cost control and performance;

 

(c)If the contract also includes incentives on technical performance or delivery, the performance requirements provide a reasonable opportunity for the incentives to have a meaningful impact on the contractor's management of the work;

 

(d)The contractor's accounting system is adequate for providing data for negotiating firm targets and a realistic profit adjustment formula, as well as later negotiation of final costs; and

 

(e)Adequate cost or pricing information for establishing a reasonable firm target is reasonably expected to be available at the time of initial contract negotiations.

 

2408.2A fixed-price incentive contract shall be used only when the contracting officer determines that this type of contract would be less costly than any other type or that it is impractical to obtain goods or services of the kind or quality required without the use of this contract type.

 

2408.3A fixed-price incentive contract with a firm target shall specify a target cost, a target profit, a price ceiling (but not a profit ceiling or floor), and a profit adjustment formula. These elements shall be negotiated at the outset. The formula shall have the following results:

 

(a)When the final cost is less than the target cost, application of the formula will result in a final profit greater than the target profit;

 

(b)When the final cost is more than the target cost, application of the formula will result in a final profit less than the target profit, or a net loss; or

 

(c)If the final negotiated cost exceeds the price ceiling, the contractor will absorb the difference as a loss.

 

2408.4In a fixed-price incentive contract with a firm target, the price ceiling shall be the maximum that may be paid to the contractor, except for any adjustment under other contract clauses.

 

2408.5When the contractor completes performance, the contracting officer and the contractor shall negotiate the final cost, and establish the final price by applying the formula.

 

source

Final Rulemaking published at 35 DCR 1561 (February 26, 1988).