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The PTA is derived from the following formula: PTA = ((ceiling price target price/government (overrun) share ratio)) + target cost. As such, it can be manipulated by changing any of the formula's values. How does the FIF profit sharing formula work?
16.403 Fixed-price incentive contracts. (a) Description. A fixed-price incentive contract is a fixed-price contract that provides for adjusting profit and establishing the final contract price by application of a formula based on the relationship of total final negotiated cost to total target cost.
Fixed price incentive fee (FIF) contract. A type of contract where the buyer pays the seller a set amount (as defined by the contract), and the seller can earn an additional amount if the seller meets defined performance criteria.
A fixed-price contract is a type of contract where the payment amount does not depend on resources used or time expended. This is opposed to a cost-plus contract, which is intended to cover the costs with additional profit made.
The point of total assumption (PTA) is the point above which the seller effectively bears all the costs of a cost overrun on a fixed price 'incentive fee' (FIF or FBI) contract. The seller bears all the cost risk at PTA and beyond, due to a dollar for dollar decrease in its profits for costs in excess of the PTA.
A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.
A fixed-price incentive contract is a fixed-price contract that provides for adjusting profit and establishing the final contract price by application of a formula based on the relationship of total final negotiated cost to total target cost.
Incentive Contract Law and Legal Definition. Incentive contracts are entered into when there is some uncertainty in the cost of work, particularly when a product is being built to unique specifications. These contracts specify the amount of profit or fee payable under the contract for a contractor's performance.
Target Cost = 1,000. Target Fee = 100. Benefit/Cost Sharing Ratio for cost overruns = 80% Client / 20% Contractor. Benefit/Cost Sharing Ratio for cost under runs = 60% Client / 40% Contractor.
Firm Fixed Price (FFP) A FFP is the most common type of fixed-price contract. In an FFP contract that scope of the product or service should be exact. The price will be set on the buyer's request. ... As an example, a car manufacturer would enter into an FFP contract for a standard model car.
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