Question

Under normal conditions, which of these contract types poses the greatest risk to the buyer?

Answer 1

Cost-Plus-Fixed-Fee (CPFF) contract types pose the greatest risk to the buyer.

A cost-plus-fixed-fee contract allows the contractor to be paid a negotiated fee that is set at the start of the contract. It is a type of cost-reimbursement contract. The fixed fee is not affected by actual costs, but it may be changed if the work that must be done to fulfil the contract changes.

When both the contractor and the owner concur that the contractor is entitled to a fee in addition to the project expenses, cost plus fixed fee contracts may be used. There may be a number of reasons for this arrangement, but cost-plus contracts must also state the fundamental justifications for the contractor's charge.

There should be clauses that specify what legal repercussions will occur if the fee clauses are not followed.

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