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What is the COR's role in monitoring fixed price contracts?

Because fixed price contracts place maximum risk on the contractor, the COR's monitoring duties are minimal. However, acceptable contract performance is still a fundamental responsibility that rests primarily with the COR.

To that end, in the event the COR has reason to suspect that delivery or ordered material will not meet stated specifications, the COR must contact the contractor to learn more about the situation, and the contractor must respond to the COR's concerns. The COR should then notify the CO of the situation and must continue to monitor progress under the contract to ensure that delivery will be made as specified, in terms of both quality and timeliness. In the event that the contractor fails to make sufficient progress on the contract and thus endangers timely contract completion, the COR should immediately contact the CO again so he or she can determine what action is to be taken.

Cost Reimbursement Contracts

When are cost reimbursement contracts typically used, and what is the risk involved?

Under cost reimbursement contracts, the government assumes the risk for all allowable costs incurred up to a pre-established limitation on costs. Cost reimbursement contracts are typically established for research, preliminary exploration or study, or development and testing. Contemplate award of a cost reimbursement contract when the resources that will be required to perform the work (e.g., labor hours, labor mix, material requirements) are highly uncertain at the time of award.

What are the types of cost reimbursement contracts?

Contracts in the cost reimbursement family include:

Cost plus fixed fee (CPFF). The contractor is reimbursed all allowable, allocable, and reasonable costs and is paid a predetermined fee regardless of actual costs incurred.

Contemplate award of a CPFF contract when relating fee to measures of performance (e.g., to actual costs) would be unworkable or, compared to the cost of administering an award fee or incentive contract, of marginal utility.

Cost plus incentive fee (CPIF). This contract type establishes a formula to relate fee to objective measures of performance (e.g., actual costs; delivery dates; performance benchmarks; or standards, such as the quality levels of services to be provided).

Contemplate award of a CPIF contract when:

- A mathematical relationship can be established between the fee and critical aspects of performance

- The potential fee is large enough to provide a meaningful incentive to the contractor and to justify the additional costs of administering the incentive fee terms and conditions.

Cost plus award fee (CPAF). An additional award fee may be added to a base fee, based on judgmental measures of productivity. See Exhibit 4-1, Sample Award Fee Plan, at the end of this chapter.

Contemplate award of a CPAF contract when:

- Objective incentive targets are not feasible for critical aspects of performance

- Judgmental standards of performance can be fairly applied by an award-fee panel

- The potential fee is large enough both to provide a meaningful incentive to the contractor and to justify the additional costs of administering the award fee terms and conditions.

Cost (no fee) and cost sharing. The contractor works without a fee or shares the cost of performance with the government.

Contemplate award of a cost or cost sharing contract when the contractor:

- Expects substantial compensating benefits for absorbing part of the costs or forgoing the fee (such as being able to develop commercial markets for products that result from federal research)

- Is a nonprofit entity.

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