From Ascgroup

The Role and Supporting Clauses for the Performance Incentive Fee (PIF) in Contracting

The Performance Incentive Fee (PIF) is a Basis of Payment (B of P) item used on some service contracts. Since TF!© is a resource and cost estimating software tool, this B of P items can readily be modeled within the TF!© software when desired by the customer.

Performance Incentive Fee (PIF)
Objective: To incentivize better than satisfactory performance when some specific key elements of performance cannot be objectively/quantitatively measured and areas of importance may shift over the course of the contract.

Contract Type(s): Can be used for all types of firm and reimbursable contracts

Prerequisite(s): Obligated funding for the PIF and a PIF management structure that includes the documentation of performance and both formal and informal communication channels.

Description: PIF is an amount available in addition to fixed profit to be disbursed to a contractor based on a performance assessment by the customer following a documented process to conduct the assessment. The criteria to be used by the customer in the assessment are as determined by the customer (one example, though not mandatory, is performance above and beyond the contract Performance Standards [SeeSOR will measure against this criteria]), and can change from PIF period to PIF period. The PIF provides not only profit or fee motivation, but also the motivation resulting from periodic evaluations by professional peers.

Pros:
1. Allows the Customer to influence the more subjective aspects of a service delivery contract while the objective aspects are addressed through other Basis of Payment mechanisms.
2. Can be “free” in that confident Contractors may offset a component of their fixed profit for the PIF in order to provide the lowest total price - thus putting the Customer “in charge” of some or all of their profits

Cons:
1. Customer effort in administering the program
2. Potential for Customer abuse (PIF withheld in order to be used for other Customer needs)