Cost Plus Award Fee (CPAF)
A Cost Plus Award Fee (CPAF) contract reimburses the seller for allowable costs plus an award fee based on the buyer's subjective evaluation of the seller's performance.
Explanation
CPAF contracts include a base fee (which is fixed) and an award fee pool that is allocated based on the buyer's satisfaction with the seller's performance. Unlike CPIF, where fee adjustments are formula-driven, the award fee in CPAF is determined by a subjective evaluation typically conducted by an award fee board at predetermined intervals.
The evaluation criteria for the award fee are established in the contract and may include quality of work, timeliness, technical innovation, management effectiveness, and customer satisfaction. The award fee board reviews the seller's performance and determines how much of the award fee pool the seller earns. The award fee determination is generally not subject to appeal.
CPAF is used when the buyer wants to incentivize overall performance excellence rather than just cost control. It is common in government contracts for complex services where performance quality is difficult to measure with objective metrics alone. The subjective nature of the evaluation requires clear criteria and consistent application to be effective.
Key Points
- •Includes a base fee plus a subjective award fee pool
- •Award fee determined by buyer evaluation, not a formula
- •Incentivizes overall performance, not just cost control
- •Award fee determination is typically not appealable
Exam Tip
CPAF uses subjective evaluation for the award fee. If the exam describes a contract where the buyer rates seller performance to determine the fee, the answer is CPAF. The award fee is not subject to dispute.
Frequently Asked Questions
Related Topics
Cost-Reimbursable Contracts
Cost-reimbursable contracts are agreements where the buyer reimburses the seller for all legitimate actual costs incurred in performing the work, plus a fee representing the seller's profit.
Cost Plus Fixed Fee (CPFF)
A Cost Plus Fixed Fee (CPFF) contract reimburses the seller for all allowable costs and pays a fixed fee (profit) that does not change regardless of actual costs.
Cost Plus Incentive Fee (CPIF)
A Cost Plus Incentive Fee (CPIF) contract reimburses the seller for allowable costs and includes an incentive fee that adjusts based on the seller's performance against agreed-upon cost targets.
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