Company A bought a well-defined project deliverable from Company B. Company A will pay a fixed total price plus a percentage premium for the schedule target achieved. For which type of contract have…

Question

Options

• AFixed-price-incentive-fee contracts (FPIF)
• BFirm-fixed-price-contracts (FFP)
• CFixed price with Economic Price Adjustment Contracts (FP-EPA)
• DTime and material contracts (T&M)

• A
  75% (44)
• B
  3% (2)
• C
  15% (9)
• D
  7% (4)

Explanation

Fixed-Price Incentive Fee (FPIF) is correct because it combines a fixed base price with a performance-based incentive - here, a percentage premium tied to meeting the schedule target, which is exactly the FPIF structure.

• FFP (B) is wrong because it has no incentive component at all - the buyer pays a single agreed price regardless of performance.
• FP-EPA (C) is wrong because economic price adjustment clauses exist to protect against external cost fluctuations (inflation, commodity prices), not to reward performance milestones.
• T&M (D) is wrong because Time & Material contracts bill based on actual hours worked and materials used - there's no fixed total price, and the deliverable scope is typically not well-defined upfront.

Memory tip: Think "FPIF = Fixed Price + If you hit the target, you earn a bonus." The incentive fee is always tied to a measurable performance goal (cost, schedule, or quality), making it distinct from the other fixed-price variants.

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