Do you need customer support or technical assistance? Click here to submit a support ticket...

TOPIC: Fixed Price Incentive Fee vs Cost Plus Incentive Fee Calculations

Fixed Price Incentive Fee vs Cost Plus Incentive Fee Calculations 2 years 1 month ago #10403

  • Kitty Kemal
  • Kitty Kemal's Avatar Topic Author
  • Visitor
  • Visitor
What is the difference in calculating the costs, fees and prices for FPIF contracts and CPIF contracts?

This question came up while I was going through the exercises in Rita. I tried to look for answers on the internet but I cannot find one that provides a reasonable comparison. From what I have read, the only difference I found is that FPIF has a Ceiling Price, but both contracts use the formulas:
Final Fee = ((Target cost – Actual Cost) * Seller’s sharing ratio) + Target fee
Final Price = Actual cost + Final Incentive Fee

Can someone help me understand this topic and why is actual cost used in the final price for FPIF as I think it contradicts the meaning of a FP contact.

Thanks in advance.

Fixed Price Incentive Fee vs Cost Plus Incentive Fee Calculations 1 year 6 months ago #12538

  • Nancy
  • Nancy's Avatar Topic Author
  • Visitor
  • Visitor
I have the exact same question! Did you ever figure it out?

Fixed Price Incentive Fee vs Cost Plus Incentive Fee Calculations 1 year 4 months ago #13067

  • Anonymous
  • Anonymous's Avatar Topic Author
  • Visitor
  • Visitor
In FPIF, there's a ceiling price, the buyer will never pay above this price. The seller's profit decreases as the costs rises above the target cost. Once it hits the PTA, the buyer will no longer share the cost overrun, any cost overrun from that point onward will be totally absorbed by the seller. If the cost overrun goes beyond the ceiling price, the seller will suffer a loss.
In CPIF, there's no ceiling price but there's a range for the incentive (min and max). The seller's profit will decrease as the cost increases above the target cost till it hits the min profit, by which point the buyer assume all costs and pays only min fee; likewise for underrun but in the opposite direction.
Moderators: Yolanda MabutasScott GillardMary Kathrine PaduaSteven Mudrinich, PMPCynthia Lim Louis, PMPTracy Shagnea, PMPPatrick Floris PhD PMPJoe PangJason YorekLuke HoSimone ChristieAmy MartinezDaniel DewartEmily Rivera

OSP INTERNATIONAL LLC
OSP INTERNATIONAL LLC
Training for Project Management Professional (PMP)®, PMI Agile Certified Practitioner (PMI-ACP)®, and Certified Associate in Project Management (CAPM)®

Login
21-Jun-2019: Free PMP Exam Coaching Webinar with Dan Ryan Register Now...