Both Cost Plus Award Fee and Cost Plus Incentive Fee contract types are Cost Reimbursable contracts in which the seller is reimbursed for completed work plus a fee representing profit.

In the PMBOK guide, for Cost Plus Award Fee contract below point is mentioned,

The determination of fee is based solely on the subjective determination of seller performance by the buyer, and is generally not subject to appeals

And for the Cost Plus Incentive Fee contract below explanation,

The seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based upon achieving certain performance objectives as set forth in the contract

Are there any other differences between these 2 types of contract?


FAR Definition of Incentive and Award Fees

Scroll down to Section 16.4.

These two types of fee structures are essentially the same thing except for the criteria of the fee. The FAR differentiates between the two based on the specificity of the criteria where, for incentive, it is both feasible and effective to arrive at very specific, objective criteria. Where and when not, then it is an award fee.


Cost Plus Award Fee: It depends on the opinion of the buyer (subjective) according to the seller's performance, it's a recognition or prize.

Cost Plus Incentive Fee: As PMBOK states, it's predetermined, according to the achieving of specific and measureble objectives.

The incentive is set in the contract, the award is not set.

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