Clauses · FAR · Pricing and audit
FAR 52.216-16 Incentive Price Revision-Firm Target
Does the regulation require it to flow down?
No
There is no mandate to insert the whole clause in a subcontract. Primes flow it down verbatim so that the sub's price is provisional on the same terms the prime's price is provisional: without a back-to-back revision mechanism the prime absorbs the entire delta between the sub's fixed price and the final negotiated price on the prime contract. BAE flows it with Alternate I and rewrites the Disagreements paragraph to put itself in the contracting officer's chair
A clause can reach your subcontract without a mandate. Once it is in your document, it is a contract term all the same. The missing mandate is a fact about the regulation. It is not a ruling on your order.
Checked against acquisition.gov on 2026-08-05 · edition JAN 2022 (Basic; Alt I APR 1984) · base v0.9.3 Read the text ↗
What it makes you produce
3 items for your checklist, slowest first.
Something you write2
Days to weeks, and nobody outside your company has to agree to it.
A detailed statement of all costs incurred, an estimate of cost to complete and data on residual inventory, delivered within the number of days the Schedule sets after the event the Schedule names
FAR 52.216-16(c)A quarterly limitation on payments statement — items delivered, costs incurred, the profit allocable to what was delivered, and the total invoiced — with any excess over what the formula supports refunded without waiting to be asked
FAR 52.216-16(g)
Nothing to send now
It does not hold the order. It decides what money moves later — what you can claim, what can be claimed from you, and what can be held back — and none of that changes after signature.
The total final price is settled after performance from actual allowable costs adjusted by the share ratios, and until it is, what you invoice runs at billing prices adjusted under paragraph (f)
FAR 52.216-16(e) and (f)
When it is used
FAR 16.406(a): inserted in solicitations and contracts when a fixed-price incentive (firm target) contract is contemplated — one target cost, one target profit, a share ratio, and a ceiling price fixed at award. No dollar threshold; the trigger is the pricing arrangement alone. Alternate I (APR 1984) applies when supplies or services are ordered under a provisioning document or a Government option and their prices are subject to incentive price revision; it adds paragraph (o). FPI is not available for commercial products and services in the ordinary case (FAR 12.207(a) permits firm-fixed-price and fixed-price with EPA), so a commercial subcontract does not reach this clause. The clause is priced off allowable cost under FAR part 31, which means it drags the whole cost-accounting and audit apparatus into what is nominally a fixed-price deal.
Read closely
The ceiling price stated in the Schedule is fixed and nothing in the revision can pass it. Late delivery of the paragraph (c) statement is recoverable where it causes an overpayment. Failure to agree on the final price within 60 days puts a unilateral decision in the buyer's hands under paragraph (i) — and in a copy the prime rewrote, that may be the prime's decision under its own disputes terms rather than a contracting officer's under the Contract Disputes Act.
Alternates
Alt I · APR 1984
FAR 16.406(a) — used when supplies or services ordered under a provisioning document or a Government option are subject to incentive price revision.
Alternate I adds a paragraph (o) treating supplies or services ordered under a provisioning document or a Government option as priced at target prices, with their target cost and profit established separately, in the aggregate, or combined with the rest as the parties agree. It adds items to the revision and asks for no statement or form the basic clause does not already ask for.
The 3 templates that name it, with the line
Source: acquisition.gov, FAR 52.216-16, FAR 16.406(a), FAR 16.102(c), plus the FAR Overhaul part 16 deviation guide 16.406(a) (verified 2026-08-05)
This is research, not legal advice. It states what the regulation says about this clause and cites the paragraph behind it. It does not rule on your order, and it does not rule on whether a prime's markings are correct.