A Cost-Plus-Fixed-Fee (CPFF) Contract is a cost-reimbursable contract where the buyer reimburses the seller for allowable costs as defined by the contract, plus a fixed fee that represents the seller’s profit. The fixed fee remains constant regardless of the total project cost.
Key Aspects of a CPFF Contract
- Covers All Allowable Costs – The seller is reimbursed for all agreed-upon project expenses.
- Includes a Fixed Profit Fee – The seller receives a predetermined amount, unaffected by cost variations.
- Used in Long-Term & High-Risk Projects – Common in research, defense, and government contracts.
- Minimizes Seller Risk – Ensures the contractor earns a profit, even if project costs increase.
CPFF vs. Other Cost-Reimbursable Contracts
| Contract Type | Description |
|---|---|
| Cost-Plus-Fixed-Fee (CPFF) | Covers actual costs plus a fixed fee, regardless of performance. |
| Cost-Plus-Award-Fee (CPAF) | Covers actual costs plus an award fee based on performance. |
| Cost-Plus-Incentive-Fee (CPIF) | Covers actual costs plus an incentive fee tied to cost savings or efficiency. |
Example Scenarios
Aerospace & Defense
A government defense agency awards a CPFF contract to develop a new missile system, ensuring that all research costs are covered, plus a fixed profit fee.
Scientific Research
A university research team receives a CPFF contract for climate change studies, covering lab expenses and personnel salaries, with a predetermined profit margin.
Infrastructure & Construction
A government hires a construction firm under a CPFF contract to design a new highway system, reimbursing all labor and material costs while maintaining a fixed contractor fee.
Why CPFF Contracts Matter
- Reduces Seller Financial Risk – The contractor earns a guaranteed fee.
- Encourages Project Innovation – Allows flexibility in research-heavy or evolving projects.
- Ensures Buyer Control Over Costs – Buyers reimburse only allowable, pre-approved costs.
- Supports Long-Term Contracts – Useful for projects where precise cost estimation is difficult.
See also: Cost-Reimbursable Contracts, Cost-Plus-Award-Fee (CPAF) Contract, Procurement Management Plan, Risk Allocation in Contracts.