---
kind: "section"
citation: "48 C.F.R. § 16.402-1"
title: "48"
number: "16.402-1"
heading: "Cost incentives."
url: "https://uscodex.org/cfr/48/16.402-1"
---

# §16.402-1. Cost incentives.

- (a) Most incentive contracts include only cost incentives, which take the form of a profit or fee adjustment formula and are intended to motivate the contractor to effectively manage costs. No incentive contract may provide for other incentives without also providing a cost incentive (or constraint).
- (b) Except for award-fee contracts (see 16.404 and 16.401 (e)), incentive contracts include a target cost, a target profit or fee, and a profit or fee adjustment formula that (within the constraints of a price ceiling or minimum and maximum fee) provides that—
  - (1) Actual cost that meets the target will result in the target profit or fee;
  - (2) Actual cost that exceeds the target will result in downward adjustment of target profit or fee; and
  - (3) Actual cost that is below the target will result in upward adjustment of target profit or fee.

## Notes

### Amendments

[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12696, Mar. 17, 1997; 62 FR 51379, Oct. 1, 1997; 74 FR 52859, Oct. 14, 2009]

### Authority

Authority: 41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113.

### Source

Source: 48 FR 42219, Sept. 19, 1983, unless otherwise noted.

### Amendments

[48 FR 42219, Sept. 19, 1983, as amended at 62 FR 12696, Mar. 17, 1997; 62 FR 51379, Oct. 1, 1997; 74 FR 52859, Oct. 14, 2009]