Cost Plus Fixed Fee / Incentive Fee ?

Submitted by rjbuzzing on Sun, 02/17/2013 - 22:06

Q. A contract where the buyer reimburses the seller the costs incurred by her, and also provides for fixed amount of profit is also called: 

 
 
  Choice 1 Cost plus incentive fee contracts
 
  Choice 2 Cost plus fixed fee contracts
 
  Choice 3 Time and material contracts
 
  Choice 4 Cost plus award fee contracts

According to PMStudy the anwer is Choice 2. Thoughts ?
 
 
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admin

Mon, 02/18/2013 - 03:33

INcentive fee is based on certain conditions being met. For eg: finishing before time or based on some other measurements. ONly if you meet that criteria you are paid Incentive fee, else you will be only given basic cost.

Hope that clarifies.

guptaab1

Mon, 02/18/2013 - 11:46

 Choice 2 is the correct answer.

As explained by PM Zilla Admin, Incentive fee contracts go by literal meaning that is the buyer pays incentives to the seller. You will agree that incentives are generally paid or given on obatining something extra. Could delivering the project early, limiting the project cost within a particular cost, meeting sales targets, etc.

Hope this clarifies.

 

Regards,

Amit

aval

Mon, 02/18/2013 - 11:52

Its very clearly written in the question that it provides for fixed amount of profit over reimbursable costs.  Incentives are not fixed.  Its CPFF.

rjbuzzing

Tue, 02/19/2013 - 03:19

 Thanks guys.

How about CP Award Fee contract? is the award fixed and if it is then, can it be fixed based on achieveing some profit maximization targets ?

 

 

aval

Tue, 02/19/2013 - 07:24

Award is also based on targets.  But evaluation of achievement of thoese targets is subjective and not challangable.  So, whatever customer evaluates is almost final.