Cost-Plus-Award-Fee Contract

A Cost-Plus-Award-Fee (CPAF) contract is an agreement where the buyer agrees to pay the contractor for all allowable costs incurred during the project, plus an additional fee that includes an award or incentive for good performance. This contract reduces the contractor’s financial risk because they’re reimbursed for costs and can earn extra for meeting or exceeding performance standards. It’s often used when project scope is uncertain or innovative work is involved, encouraging high performance while ensuring the contractor's expenses are covered.