CHAPTER 7
Profit or Fee
Profit and fee considerations in pricing are important concepts that must be understood by estimators and reviewers. Price is composed of two elements: (1) cost and (2) profit or fee, sometimes referred to as markup.1 Although cost represents the larger portion of price, markup is at least as important to the contractor in negotiations. As used in the Federal Acquisition Regulation (FAR), profit pertains to fixed-price-type contracts and fee pertains to cost-type contracts.
Despite the precise regulatory use of these terms, they are used somewhat interchangeably in casual government contracting jargon. The true profit, or net income, for a contractor is what the business earns after deductions for unallowable costs and ...
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