Which statement about a Cost-Plus-Fixed-Fee contract is true?

Which statement about a Cost-Plus-Fixed-Fee contract is true?

• A. The fixed fee increases with total costs
• B. The fixed fee decreases as costs rise
• C. The fixed fee is negotiated and fixed, not varying with actual costs
• D. There is no fixed fee

Answer: (C)

In a Cost-Plus-Fixed-Fee contract, the contractor is reimbursed for allowable costs and receives a fixed fee that does not change with the actual costs. The fee is negotiated up front and remains the same regardless of how high or low the costs turn out to be. This means the contractor’s profit is fixed, while cost risk is borne by the buyer since total reimbursement can vary with costs. So the true statement is that the fixed fee is negotiated and fixed, not varying with actual costs. The other ideas imply the fee fluctuates with cost or that there’s no fixed fee, which doesn’t describe CPFF.

In a Cost-Plus-Fixed-Fee contract, the contractor is reimbursed for allowable costs and receives a fixed fee that does not change with the actual costs. The fee is negotiated up front and remains the same regardless of how high or low the costs turn out to be. This means the contractor’s profit is fixed, while cost risk is borne by the buyer since total reimbursement can vary with costs. So the true statement is that the fixed fee is negotiated and fixed, not varying with actual costs. The other ideas imply the fee fluctuates with cost or that there’s no fixed fee, which doesn’t describe CPFF.