Difference between a Cost Plus Fixed Fee and Cost plus Incentive fee - clarification

Submitted by Charnellebester... on Thu, 05/10/2012 - 18:24

In what type of contract is the seller reimbursed for all allowable cost for performing the contract work and recieves a predetermined fee based upon achieving certain performance objectives:

 

A:  Cost plus fixed fee

B:  Cost plus incentive fee

 

The confusion from my part is that both are predetermined?  Or is the clear distinction the fact that the fee in a cost plus fixed fee is mandatory (Legally binding) and a cost plus incentive fee is based on discretion?


Some help with this would be much appreciated.

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Vashishta

Fri, 05/11/2012 - 03:02

 In cost + fixed fee; the fixed fee is constant and will be given to the seller on completion of the work. Performance does NOT come into picture here.....

in cost+ incentive fee; this is purely depends on the performance objectives set in the contract. In this type; both seller and buyer share the loss or profit based on the terms (e.g. 80/20 or 90/10 etc...) set in the contract.

Both are pre-determined in the contract.....

PMNovice

Sat, 05/12/2012 - 19:42

 

Right,One thing which comes to my mind is in Cost plus incentive fee the buyer has little bit less risk  when compared to cost plus fixed fee because there is little bit of "hook" through the incentive which is not the case with fixed fee.

PN