Cost-Plus-Award-Fee (CPAF)
A cost-reimbursement contract type in which the contractor is reimbursed for allowable costs and may earn additional fee based on the government's evaluation of performance.
What Is CPAF?
In government contracting, a CPAF contract pays the contractor for allowable incurred costs and includes an award fee that is earned based on how well the contractor performs. The fee may include a base fee, which can be zero, plus an award fee tied to the government's judgment of performance.
This contract type is used when the government wants to reward strong performance, but the results cannot be measured well enough through a strict formula alone.
Key Characteristics
Reimburses allowable contract costs
Includes an award fee based on government evaluation
May include a base fee, which can be zero
Focuses on cost, schedule, technical, or management performance
Uses evaluation periods and an award fee plan
How It Works in Government Contracting
A CPAF contract is used when the government wants flexibility in evaluating contractor performance during contract execution. Instead of using only a fixed incentive formula, the government reviews performance and decides how much of the available award fee the contractor has earned.
It is used by contracting officers, program offices, and performance evaluators. The government sets evaluation criteria in an award fee plan and reviews the contractor's performance at specific intervals.
In practice, the contractor may earn all, part, or none of the award fee depending on how well it meets the government's expectations.
Regulatory Framework
CPAF contracts are part of the federal cost-reimbursement and incentive contract framework. They are commonly used when performance quality matters and the government wants to evaluate results using judgment rather than only a mathematical formula.
For defense contracts and other complex procurements, award fee structures may include additional agency-specific rules and oversight.
Why It Matters for Contractors
CPAF matters because contractor profit is not fully fixed at award. A portion of the fee depends on how the government rates performance during the contract.
This makes performance management, documentation, communication, and customer satisfaction especially important. A contractor that performs well may earn higher fee, while weak performance can reduce earnings.
Common Misconceptions About CPAF
CPAF guarantees extra profit.
Award fee is not automatic. The contractor may earn only part of it or none of it.
CPAF is the same as CPIF.
CPAF uses judgment-based performance evaluation, while CPIF uses a formula-based incentive structure.
A base fee is always required.
The base fee can be zero.
Frequently Asked Questions
What does CPAF stand for?
It stands for Cost-Plus-Award-Fee.
How is the award fee earned?
It is earned based on the government's evaluation of contractor performance during the contract.
Is the contractor guaranteed the full fee?
No. The contractor is reimbursed for allowable costs, but the award fee depends on performance.
When is CPAF usually used?
It is used when the government wants to motivate strong performance in areas that cannot be measured well by a simple formula.
Related Government Contracting Topics
CPIF: A Cost-Plus-Incentive-Fee contract that adjusts fee using a cost-based formula.
CPFF: A Cost-Plus-Fixed-Fee contract with a negotiated fee fixed at award.
Award Fee Plan: The document that explains how the government will evaluate performance and assign award fee.
Cost-Reimbursement Contract: A contract type that reimburses allowable incurred costs under contract terms.
Incentive Contract: A contract designed to motivate contractor performance through fee or price incentives.
Allowable Cost: A cost that is reimbursable under the contract and applicable cost principles.