Section 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.48 FR 42219, 9/19/1983, as amended at 62 FR 12696, 3/17/1997; 62 FR 51379, 10/1/1997; 74 FR 52859, 10/14/2009