A Cost-Plus-Fixed-Fee (CPFF) contract reimburses a contractor for allowable costs incurred during a project and provides a fixed fee for profit. Unlike Firm-Fixed-Price contracts, where contractors assume the risk of cost overruns, CPFF contracts protect businesses from financial loss while still ensuring a reasonable return.
These contracts are commonly used in research, development, and technical service projects, where precise costs are difficult to estimate in advance.
How Cost-Plus-Fixed-Fee Contracts Work
Instead of bidding a single fixed price, businesses receive:
✔ Reimbursement for all allowable costs: Covers labor, materials, and overhead expenses.
✔ A fixed fee: A predetermined amount paid on top of costs, regardless of final expenses.
Example: A small engineering firm is awarded a CPFF contract to develop a new radar system for the Department of Defense. The government covers all project costs plus a fixed $200,000 fee to ensure profitability.
Why Small Businesses Should Consider CPFF Contracts
✔ Lower Financial Risk: Since costs are reimbursed, businesses don’t bear the burden of overruns.
✔ Ideal for R&D and Innovation: Government agencies use CPFF contracts when results are uncertain, making them a strong fit for startups and tech firms.
✔ Consistent Cash Flow: Regular cost reimbursements prevent cash flow disruptions.
How to Succeed with CPFF Contracts
✔ Track Costs Diligently: The government requires accurate documentation of all expenses.
✔ Negotiate a Fair Fixed Fee: Ensure the agreed-upon fee aligns with industry standards.
✔ Manage Compliance: CPFF contracts involve strict financial oversight—businesses must follow federal cost regulations.
What’s Next?
Cost-Plus-Fixed-Fee contracts offer stability and growth opportunities for small businesses, particularly in research, engineering, and development. If you’re considering a CPFF contract, USFCR can help you navigate compliance and maximize your success.
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