You are the program manager for your project. You are working with the project managers regarding the procurement processes for their projects. You have ruled out one particular contract type…

Cost Plus Incentive Fee contracts tie the contractor's bonus to meeting or beating pre-agreed cost targets, which actively incentivizes cost control and reduces buyer risk compared to CPPC.

In a Cost Plus Percentage of Costs contract, the contractor's fee is calculated as a fixed percentage of all actual costs incurred, meaning the contractor earns more profit the more they spend on the project. This creates a direct financial incentive to inflate or mismanage costs, giving the buyer no contractual mechanism to control expenditures. No other standard contract type so fundamentally aligns the seller's profit motive with higher buyer costs.

Time and Materials contracts expose the buyer to cost growth, but they are typically scoped to smaller efforts and can include a not-to-exceed ceiling, making them less inherently dangerous than CPPC.

Fixed Fee (Firm Fixed Price) contracts place the cost risk entirely on the seller since the price is locked in advance regardless of the contractor's actual expenditures, making this the safest contract type for buyers.