Which of the following is Correct?

Cost-Plus-Award-Fee (CPAF) contracts are a type of cost-reimbursement contract that provides for a fee consisting of a base amount (which may be zero) and an award amount. The award amount is determined by the buyer's subjective evaluation of the seller's performance in designated areas like quality, timeliness, and technical ingenuity. This evaluation is based on criteria defined in an award-fee plan. Therefore, the seller's profit (the fee) is directly tied to how well it satisfies the buyer's subjective judgment of its performance, making the incentives subjective in nature.

B. Cost-Plus-Incentive-Fee (CPIF) contracts use objective, formula-based incentives tied to cost, not subjective ones.

C. CPAF contracts use subjective, not objective, incentives. Also, the seller earns the profit (fee), not the buyer.

D. The seller's performance determines the fee, not the buyer's. Also, the buyer does not earn a profit in this context.

1. National Contract Management Association. (2019). Contract Management Body of Knowledge (CMBOK) (6th ed.). Section 2.2.3.3, "Cost-Reimbursement Family of Contracts," describes CPAF contracts as involving a fee based on a "subjective evaluation by the buyer of the seller's performance."

2. U.S. General Services Administration. (2023). Federal Acquisition Regulation (FAR). Subpart 16.405-2, "Cost-plus-award-fee contracts." This section states, "The amount of the award fee to be paid is determined by the Government’s judgmental evaluation of the contractor’s performance in terms of the criteria stated in the contract."

3. Defense Acquisition University (DAU). (n.d.). Contract Types. In the ACQuipedia article on Cost-Plus-Award-Fee (CPAF) Contract, it is noted that the award fee is based on "the Government’s subjective evaluation of contractor performance." In contrast, the article on Cost-Plus-Incentive-Fee (CPIF) specifies an "objective incentive fee adjustment formula."