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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.
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.
It provides insight into the mechanics of fixed-price incentive firm target (FIF) contracts, provides a framework to analyze proposed FIF contracts and demonstrates how FIF pricing arrangements can be manipulated to alter the allocation of risk between the government and contractor.
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.
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.
A FIF contract gives the buyer and seller some flexibility in that it allows for deviation from performance, with a financial incentive for achieving certain metrics. Generally the incentives are related to cost, schedule, or the technical performance of the seller.
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.
Contract type is a term used to signify differences in contract structure or form, including compensation arrangements and amount of risk (either to the government or to the contractor). Federal government contracts are commonly divided into two main types, fixed-price and cost-reimbursement.
A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract.
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.
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