Certified Supply Chain Professional (CSCP) Practice Exam

In a fixed price incentive fee contract, what additional benefit can a seller earn?

1. A profit if certain conditions are met

2. Compensation for all cost overruns

3. A guarantee of contracts for future products

4. Increased fixed fees for early completion

The correct answer is: A profit if certain conditions are met

In a fixed price incentive fee contract, the seller can indeed earn a profit if certain conditions are met. This type of contract is designed to provide an incentive for the seller to control costs and complete the project efficiently. The seller is typically paid a predetermined fixed price for the project, but they have the opportunity to earn additional profit based on their ability to meet or exceed specific performance targets, usually related to cost savings or timely delivery. The incentive structure allows the seller to keep a portion of the cost savings achieved by completing the project under budget or ahead of schedule. This means that if the seller manages to reduce costs beyond what was originally expected, they can share in those savings, leading to increased profitability. Thus, the ability to earn additional profit through effective performance is a core aspect of the incentive built into this type of contract, making it a compelling option for sellers aiming to optimize their returns.