You are the program manager of the NQA Program. In this program you're planning which contract types you'll allow into the program and which ones you will not. One contract type you won't accept is…

Question

Options

• AThe contract type requires the vendor to provide a fee for the time invested and the materials
• BThe contract type allows the vendor to change the price of the work he's completed.
• CThe contract type allows is the most dangerous for the buyer.
• DThe contract type requires the vendor to provide a fixed price for the work.

• B
  6% (2)
• C
  91% (29)
• D
  3% (1)

Explanation

The Cost Plus Percentage of Cost (CPPC) contract is the most dangerous contract type for the buyer (Choice C). Under CPPC, the seller is reimbursed for all allowable costs PLUS receives a fee equal to a percentage of those costs. This creates a perverse incentive: the higher the costs, the higher the seller's profit - so the seller has no motivation to control or reduce costs. This places virtually all cost risk on the buyer with no cap or ceiling. For this reason, CPPC contracts are generally prohibited in U.S. federal government contracting and are avoided in sound program management practice. The other choices describe incorrect characteristics of this contract type.

No community discussion yet for this question.