Which contract type is least desirable to a vendor?

The correct answer is B. Firm fixed price (FFP). Firm Fixed Price (FFP) is the least desirable contract type from the vendor's perspective because it places the maximum financial risk on the vendor. The vendor must deliver the agreed scope for a fixed price regardless of actual costs incurred. If costs overrun, the vendor absor

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Question

Which contract type is least desirable to a vendor?

Options

AFixed price with economic price adjustment (FPEPA)
BFirm fixed price (FFP)
CCost plus fixed fee (CPFF)
DCost plus award fee (CPAF)

How the community answered

(45 responses)

A
2% (1)
B
91% (41)
C
4% (2)
D
2% (1)

Explanation

Firm Fixed Price (FFP) is the least desirable contract type from the vendor's perspective because it places the maximum financial risk on the vendor. The vendor must deliver the agreed scope for a fixed price regardless of actual costs incurred. If costs overrun, the vendor absorbs the loss with no recourse. Cost-plus contracts (CPFF and CPAF) reimburse the vendor for all allowable costs, making them far more favorable. Fixed Price with Economic Price Adjustment (FPEPA) at least allows price changes tied to economic indices, reducing some vendor risk. FFP is, conversely, most desirable to the buyer.

Topics

#Contract types#Vendor risk#Procurement management#Risk allocation

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