Cost Plus Award Fee (CPAF) is a type of contract in which the buyer pays the seller for the actual cost of the work done plus an extra award fee based on the quality of the work. The award fee is a performance-based reward that encourages the seller to do a better job and go above and beyond what the buyer expects.
Under a CPAF contract, the buyer agrees to pay back the seller for all allowable costs, such as labour, materials, equipment, and overhead, that the seller incurred while doing the work. The contract also includes an award fee that is paid to the seller based on the agreed-upon performance metrics. Some of these metrics could be meeting deadlines, the quality of work, new ideas, and how happy customers are.
Most of the time, the award fee is based on how the buyer thinks the seller did at the end of the contract period, based on the agreed-upon metrics. The fee can go up or down based on how well the seller does, and it can be anywhere from zero to a set maximum amount.
CPAF contracts are often used for complicated, high-risk projects where the buyer wants to give the seller an incentive to do the best job they can. The CPAF contract structure gives both the buyer and the seller some flexibility, letting them make changes based on the actual costs incurred and the quality of the work done. But CPAF contracts can be harder to manage and may need more in-depth evaluations and reports of performance than other types of contracts.
Usage
It is used in procurement management
