Cost plus incentive (CPI) is a contract pricing arrangement that incentivizes contractors to control costs and improve efficiency in the delivery of goods or services. Under a CPI contract, the contractor is reimbursed for the cost of labor, materials, and other expenses incurred during the performance of the contract, and is also eligible for a predetermined incentive fee if certain performance targets are met.
The incentive fee is typically tied to specific performance metrics, such as completing the project ahead of schedule, reducing costs below a certain threshold, or achieving certain quality standards. The incentive fee is intended to motivate the contractor to achieve these goals and to share in the benefits of improved performance.
CPI contracts are commonly used in government contracts, construction projects, and other complex procurement arrangements where cost control and performance management are critical. The CPI arrangement provides an added incentive for contractors to minimize costs and improve efficiency while ensuring that they are fairly compensated for the work performed.