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What are incentive contracts designed to do? FAR 16.401(a) states that incentive contracts are designed to possibly improve delivery and technical performance while allowing the government to establish reasonable and attainable targets that are clearly communicated with the contractor.
A cost-reimbursement contract is a contract where a contractor is paid for all of its allowed expenses to a set limit, plus additional payment to allow for a profit. Cost- reimbursement contracts contrast with a fixed-price contract, in which the contractor is paid a negotiated amount regardless of incurred expenses.
The Federal Acquisition Regulation (FAR) at 16.403-1 (b) explains that an FIF contract is appropriate when a fair and reasonable incentive and a ceiling can be negotiated that provides the contractor with an appropriate share of the risk and the target profit should reflect this assumption of responsibility.
1) How does a cost-plus-incentive-fee (CPI) contract differ from a fixed-price incentive firm (FIF) contract? [Contrast the key characteristics of the various types of incentive contracts.] CPI contracts do not have a ceiling price. CPI contracts do not have an underrun shareratio.
Since it is usually to the Government's advantage for the contractor to assume substantial cost responsibility and an appropriate share of the cost risk, fixed-price incentive contracts are preferred when contract costs and performance requirements are reasonably certain.
In theory, there is no cost ceiling in a cost-reimbursement contract since cost-reimbursement contracts do not contain a ceiling price element. It should also be noted that cost-reimbursement contracts, including CPI contracts, do not have a point of total assumption (PTA).
Suggested clip AIleen's PMP Exam Prep- Cost Plus Incentive Fee (CPI) - YouTubeYouTubeStart of suggested clipEnd of suggested clip AIleen's PMP Exam Prep- Cost Plus Incentive Fee (CPI) - YouTube
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