FAR and DFARS › FAR Part 16: Types of Contracts › Subpart 16.4
FAR 16.404 Fixed-price contracts with award fees.
The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.
In plain English
This section allows the Government to use award-fee provisions in fixed-price contracts when other incentives cannot be used because contractor performance cannot be measured objectively. The contract must establish a fixed price (including normal profit) for satisfactory performance, and any award fee earned is paid on top of that fixed price. Contractors should know that this type of contract ties additional payment to performance that is not easily measured.
Applies to: Fixed-price contracts with award fees
What it requires
- Establish a fixed price (including normal profit) for the effort
- Pay that fixed price for satisfactory contract performance
- Pay any award fee earned in addition to the fixed price
Key terms: award-fee provisions · fixed-price contracts · contractor performance · award fee · satisfactory contract performance
Written by AI from this section's text. A guide, not legal advice: the text below rules.
The text
Award-fee provisions may be used in fixed-price contracts when the Government wishes to motivate a contractor and other incentives cannot be used because contractor performance cannot be measured objectively. Such contracts shall establish a fixed price (including normal profit) for the effort. This price will be paid for satisfactory contract performance. Award fee earned (if any) will be paid in addition to that fixed price. See 16.401(e) for the requirements relative to utilizing this contract type.
Sections it refers to
- 16.401 General.
← 16.403-2 Fixed-price incentive (successive targets) contracts. · 16.405 Cost-reimbursement incentive contracts. →
Rule changes for FAR Part 16
- Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 16, 17, and 35 ↗ · proposed 2026-09-18 · comments due 2026-10-19
- Federal Acquisition Regulation: Inflation Adjustment of Acquisition-Related Thresholds ↗ · final rule 2025-08-27 · effective 2025-10-01
- Federal Acquisition Regulation: Protests of Orders Under Certain Multiple-Award Contracts ↗ · proposed 2025-06-12
- Federal Acquisition Regulation: Small Business Participation on Certain Multiple-Award Contracts ↗ · proposed 2025-06-12
- Federal Acquisition Regulation: Protests of Orders Under Certain Multiple-Award Contracts ↗ · proposed 2025-01-15 · comments due 2025-03-17
- Federal Acquisition Regulation: Small Business Participation on Certain Multiple-Award Contracts ↗ · proposed 2025-01-15 · comments due 2025-03-17
- Federal Acquisition Regulation: Preventing Organizational Conflicts of Interest in Federal Acquisition ↗ · proposed 2025-01-15 · comments due 2025-03-17
- Federal Acquisition Regulation: Rerepresentation of Size and Socioeconomic Status ↗ · final rule 2025-01-03 · effective 2025-01-17
Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.