Question

What of the following kinds of contracts is the actual, final cost of the project unknown until after the project is completed (circle all that apply):
1. cost plus fixed fee

2. fixed price

3. cost plus incentive fee

4. none of these

Answer 1

Answer:

3. cost plus incentive fee.

Explanation:

Cost plus incentive fee is a type of contract where final amount for the completion of project is unknown till the project is completed. This project has cost plus an additional benefit amount. Here seller can earn an additional amount if he meets a defined criteria mentioned in the contract.

Fixed price contract cost is defined at the start of project and it does not allow any adjustments in the cost later when the project is completed.

Cost plus fixed fee is a contract in which a contractor is paid complete cost related to the performance of duties in the contract plus an additional fixed fee as their additional bonus. Usually this is agreed at the inception of the contract.