A cost-plus-incentive fee (CPIF) contract is a cost-reimbursement contract which provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs.
[1] Like a cost-plus contract, the price paid by the buyer to the seller changes in relation to costs, in order to reduce the risks assumed by the contractor (seller).
According to the PMBOK (7th edition) by the Project Management Institute (PMI), CPIF is a "type of cost-reimbursable contract where the buyer reimburses the seller for the seller's allowable cost (allowable costs are defined by the contract), and the seller earns its profit if it meets defined performance criteria".
[2] Incentive contracts allow sharing of the risks between the contractor and the client.
The contractor is reimbursed all its justifiable costs in addition to a calculated fee.