TOPIC: Question on CPIF contract

I got this question Scordo's simulator:

Q) You have recently joined an organization as the procurements manager. You have just received an invoice from a contractor. Some of the items from the invoice are as follows: EV of work completed to date: $50,000 AC of work completed to date: $40,000 Total costs reimbursed by the buyer to date: $35,000 If the contract between the buyer and the contractor is a CPIF contract, what is the total value payable to this contractor? (Assume that the contract allows for a 10 percent fee over net payable whenever CPI > 1).

Answers) I choose the answer as $44,000. However the solution offered says the answer as $5,500. Surprisingly, the incentive is being calculated on the remaining payment to be made. (In this case it is $5,000). I am really confused on this. In the case CPIF contract, the incentive is calculated on the total actual cost or the cost that is yet to be paid to the supplier.

Any help is greatly appreciated.

Thanks,
Saravanan

Saravanan,

This is a misleading question and actually really doesn't fall into the contracts portion of the exam. In reality this is an earned value management question.

How I believe they came to the answer:

They vaguely state that the incentive fee is 10% for the seller if the contract is fulfilled (CPI > 1). 10% of the EV ($50000) = $500. They then subtracted the total costs from the actual costs. $40000 - $35000 = $5000. They then added the fee to the amount of money saved ($5000) to get the answer of $5500.

Take note: using EVM is an unusual way to frame contract questions and it is very unlikely that you would see this on the PMP exam.

- Steven

Thanks a lot Steven!!

I think Steven M provided the wrong answer.

Here is my explanation:
EV of $50,000 and AC of $40,000 means CPI >1 an so incentive of 10% is payable.
Cost to date is $40,000
Previously invoiced is $35,000
able to invoice now = (40,000-35,000) $5,000, plus the 10% incentive = $5,500