In what type of contract is the seller reimbursed for all allowable costs for performing the contract work and receives a predetermined fee based upon achieving certain performance objectives as set…

Question

Options

• ACost-plus-fixed-fee
• BCost-plus-incentive-fee
• CFirm-fixed-price
• DFixed-price-incentive-fee

• A
  14% (6)
• B
  71% (30)
• C
  10% (4)
• D
  5% (2)

Explanation

Cost-plus-incentive-fee (CPIF) matches the question perfectly: the buyer reimburses the seller for all allowable costs and the fee the seller earns varies depending on whether specific performance targets (cost, schedule, technical) are met - exactly the structure described.

Why the distractors are wrong:

• A (Cost-plus-fixed-fee): Also reimburses all costs, but the fee is fixed - it doesn't change based on performance objectives, so there's no incentive mechanism.
• C (Firm-fixed-price): No cost reimbursement at all; the seller bears all cost risk for a single agreed price. Cost overruns come out of the seller's profit.
• D (Fixed-price-incentive-fee): Has an incentive fee, but it's a fixed-price contract - the buyer does not reimburse all costs. The seller still carries significant cost risk up to a price ceiling.

Memory tip: Focus on two keywords in the question - "reimbursed for all costs" narrows it to a cost-type contract (eliminating C and D), and "fee based on achieving performance objectives" means the fee is not fixed (eliminating A). Only CPIF has both features. Think: Costs Paid + If-you-perform Fee.

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