XL EagleCPIF (Cost-Plus-Incentive-Fee)
CPIF stands for Cost-Plus-Incentive-Fee. A cost-plus-incentive-fee contract sets a target cost and a target fee. If actual costs come in under target, the fee goes up. If costs run over, the fee goes down. A share ratio, like 80/20, sets how much of the savings or overrun moves the fee.
The contract also sets a minimum and maximum fee so the swing has limits. It is meant to reward contractors who control costs on work that is too uncertain for a fixed price.
Why it matters to a small contractor
Incentive fee contracts are uncommon for small trades, but the idea matters. If you sub on one, the prime may push hard on your cost, because every dollar you save can raise their fee.
Example
Target cost is $1,000,000 and target fee is $70,000 with an 80/20 share. Costs come in at $900,000. The $100,000 savings adds 20 percent, or $20,000, so fee becomes $90,000.
CPIF: common questions
What does an 80/20 share ratio mean?
The government keeps 80 percent of any savings or absorbs 80 percent of any overrun. The contractor's fee moves by the other 20 percent.
Can the fee hit zero?
Only if the contract sets a minimum fee of zero. Many contracts set a minimum that is above zero.
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