Fee/Profit - Statutory Limits

Statutory Limits

Profit negotiations generally have little or no "legal" component, however, in certain circumstances there are statutory limits. They are:

(A) For experimental, developmental, or research work performed under a cost-plus-fixed-fee contract, the fee shall not exceed 15 percent of the contract’s estimated cost, excluding fee.

(B) For architect-engineer services for public works or utilities, the contract price or the estimated cost and fee for production and delivery of designs, plans, drawings, and specifications shall not exceed 6 percent of the estimated cost of construction of the public work or utility, excluding fees.

(C) For other cost-plus-fixed-fee contracts, the fee shall not exceed 10 percent of the contract’s estimated cost, excluding fee.

FAR 15.404-4 (a) (2) and (3):

It is in the Government’s interest to offer contractors opportunities for financial rewards sufficient to stimulate efficient contract performance, attract the best capabilities of qualified large and small business concerns to Gov’t contracts and maintain a viable industrial base.

Both the Government and contractors should be concerned with profit as a motivator of efficient and effective contract performance. Negotiations aimed merely at reducing prices by reducing profit , without proper recognition of the function of profit, are not in the Government’s interest.

FAR 15.404-4(b) says that the Government should typically use a "structured approach" [like weighted guidelines] to develop a profit negotiation objective. There is nothing in that provision that says that the profit rate that is developed based on a structured approach cannot be adjusted to reflect fairness factors.

We cannot mitigate our risk at the typical levels our customers would impose.

We can not meet our corporate objectives at this level. Be careful with this one…Boeing

Negotiation Stances often used to recover higher level of profit:

Low quantity = High risk – impact of scrap and rework if required, inefficiencies in the process because there is no improvement due to repetition Technical Challenge Impact of Yield- tear down, rebuild complexities Process “Leaned Out”, no recovery opportunities if there is any problem along the way (if applicable) It is consistent with all our proposals