Cost-Plus-Fixed-Fee (CPFF)
What It Is
A cost-plus-fixed-fee (CPFF) contract reimburses the contractor for allowable incurred costs and pays a fixed fee (profit) negotiated at award. The fee is a set dollar amount that does not change with actual cost — it only changes if the government changes the work. Cost-reimbursement contracts are used when uncertainties in performance do not permit costs to be estimated with enough accuracy for a fixed price. They put most cost risk on the government, and in exchange the government requires an adequate accounting system, cost monitoring, and compliance with cost-allowability rules (FAR Part 31).
Who Carries the Risk
Most cost risk on the government — the contractor is reimbursed allowable costs and is only obligated to use best efforts up to the estimated cost; the fixed fee does not grow with cost.
When the Government Uses It
- Research, development, and studies where the scope of work cannot be defined well enough to price firmly.
- Efforts with significant performance uncertainty where a fixed price would force contractors to pad heavily for risk.
- When the government accepts cost risk and is prepared to monitor incurred costs and an approved accounting system.
Key Features
| Feature | What It Means |
|---|---|
| Cost reimbursement | You are paid your allowable, allocable, reasonable costs under FAR Part 31 cost principles — unallowable costs are not reimbursed. |
| Fixed fee | A set dollar profit negotiated up front. It does not rise if costs rise or fall if costs fall — only a change in work changes it. |
| Estimated cost & funding | The contract states an estimated cost and a funding limit. You must give notice (Limitation of Cost/Funds clause) before you exceed it. |
| Accounting system | An adequate, government-approved accounting system is required — expect an SF 1408 preaward survey and DCAA involvement. |
What It Means for an SDVOSB
Cost-reimbursement work is the steepest step up for an SDVOSB: you cannot bill a cost contract without an accounting system that can segregate and report costs (the SF 1408 preaward survey tests this), and you take on DCAA audit exposure. The upside is that the government carries the cost risk. Watch the limitations on subcontracting — for cost-type service work the 13 CFR 125.6 self-performance test is applied to the contract amount you are paid less direct materials, so plan teaming with similarly situated entities accordingly, and confirm the labor-hours treatment with your contracting officer.
Common Pitfalls
- Bidding a cost-reimbursement contract without an adequate accounting system — you will not be able to invoice and may fail the SF 1408 preaward survey.
- Ignoring the Limitation of Cost / Limitation of Funds clause — perform past the funded amount without notice and you may not be reimbursed.
- Booking unallowable costs (FAR Part 31) that the government will not pay, eroding your margin.
Run the Numbers
Frequently Asked
What does 'cost plus' actually mean for the contractor?
It means the government reimburses your allowable incurred costs and pays a separate fee (profit) on top. On a cost-plus-fixed-fee contract the fee is a set dollar amount fixed at award — it does not grow if your costs grow. You must run an adequate accounting system, follow the FAR Part 31 cost principles, and only the costs that are allowable, allocable, and reasonable get reimbursed.
Can a small SDVOSB win a cost-reimbursement contract?
Yes, but it requires more infrastructure than a fixed-price award. You need an accounting system adequate to segregate and report costs — the government typically verifies this with an SF 1408 preaward accounting-system survey — and you take on DCAA audit exposure. Many SDVOSBs start on firm-fixed-price work and build the accounting capability before pursuing cost-type contracts.
Primary Sources
Plain-English reference, not legal advice. Contract-type selection is a contracting-officer judgment and the FAR is periodically amended — always confirm the contract type, clauses, and how the limitations on subcontracting are measured against the solicitation and your contracting officer before relying on this.
Change log (1)
- LaunchedPublished the federal contract types reference covering the pricing and delivery arrangements an SDVOSB encounters on set-asides — firm-fixed-price (FFP), fixed-price with economic price adjustment (FP-EPA), fixed-price incentive (FPIF), the cost-reimbursement family (CPFF, CPIF, CPAF), time-and-materials and labor-hour, the indefinite-delivery vehicles (IDIQ, requirements, definite-quantity), and letter contracts — each with a who-carries-the-risk callout, a key-features table, an SDVOSB-specific angle tying the type to the limitations on subcontracting, common pitfalls, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source FAR Part 16 citations, and cross-links into the glossary, regulation explainers, how-to guides, FAQ, and the limitations-on-subcontracting and price-to-win calculators.