Point of Total Assumption
The point of total assumption (PTA) is a price determined by a fixed price plus incentive fee contract (FPIF) above which the seller bears all the loss of a cost overrun. It is also known as the "most pessimistic cost" because it represents the highest point beyond which costs are not expected to rise, given reasonable issues. If costs go beyond the PTA, they are assumed to be due to mis-management rather than a worst-case set of difficulties. The seller bears all of the cost risk at PTA and beyond. In addition, once the costs on an FPIF contract reach PTA, the maximum amount the buyer will pay is the ceiling price.
Any FPIF contract specifies a target cost, a target profit, a target price, a ceiling price, and one or more share ratios. The PTA is the difference between the ceiling and target prices, divided by the buyer's portion of the share ratio for that price range, plus the target cost.
PTA = ((Ceiling Price - Target Price)/buyer's Share Ratio) + Target Cost
Target Cost: 60,000
Target profit: 6000
Target Price: 63,000
Celing Price: 65,000
Share Ratio: 70% Buyer and 30% seller
PTA = (( 65000 - 63000 ) / 0.7 ) + 60000 = 62857