Certified Supply Chain Professional (CSCP) Practice Exam

What defines a cost plus fixed fee contract?

1. The seller is reimbursed for any allowable costs plus a fixed fee

2. The seller is paid a fixed price regardless of costs

3. The seller is compensated based on incentives achieved

4. The seller bears all costs with no additional fee

The correct answer is: The seller is reimbursed for any allowable costs plus a fixed fee

A cost plus fixed fee contract is defined as a procurement arrangement where the seller is reimbursed for any allowable costs incurred during the performance of the contract, plus an additional fixed fee for their services. This structure ensures that the seller is compensated for all legitimate expenses while also providing them with a guaranteed profit margin, represented by the fixed fee. This type of contract is particularly useful in situations where the scope of work is uncertain or difficult to estimate. By providing reimbursement for allowable costs, it allows for flexibility in managing unforeseen challenges while still incentivizing the seller to control costs effectively. The fixed fee assures the seller of a set profit, irrespective of the actual costs, thereby aligning the seller's incentives with the project's successful completion. Other choices reflect different contracting methods: a fixed-price arrangement where the seller's payment is independent of incurred costs, a performance-based compensation linked to incentives, and a contract structure where all risk and costs are borne by the seller without guaranteed profit.