Which type of contract does NOT specify a target fee?

Which type of contract does NOT specify a target fee?

• A. Cost-Plus Incentive Fee
• B. Fixed-Price Incentive Firm Contract
• C. Cost-Plus Fixed Fee Contract
• D. Cost-Plus-a-Percentage-of-Cost

Answer: (D)

The correct response highlights the nature of the Cost-Plus-a-Percentage-of-Cost contract, which does not specify a target fee. This type of contract allows the contractor to receive reimbursement for their allowable costs plus an additional percentage of those costs as profit. As a result, the contractor’s profit increases as costs go up, leading to a lack of financial incentive for cost control. There is no predetermined target fee that both parties have agreed upon, allowing for greater variability in the final payment to the contractor based on actual costs incurred. In contrast, the other types of contracts listed typically involve a defined target fee structure. For example, the Cost-Plus Incentive Fee and the Fixed-Price Incentive Firm Contract both establish target fees that aim to align the contractor's interests with those of the client, promoting cost efficiency and performance. The Cost-Plus Fixed Fee contract also includes a specified fixed fee, which indicates that a target amount is determined upfront, despite being adjustable based on the actual costs incurred.

The correct response highlights the nature of the Cost-Plus-a-Percentage-of-Cost contract, which does not specify a target fee. This type of contract allows the contractor to receive reimbursement for their allowable costs plus an additional percentage of those costs as profit. As a result, the contractor’s profit increases as costs go up, leading to a lack of financial incentive for cost control. There is no predetermined target fee that both parties have agreed upon, allowing for greater variability in the final payment to the contractor based on actual costs incurred.

In contrast, the other types of contracts listed typically involve a defined target fee structure. For example, the Cost-Plus Incentive Fee and the Fixed-Price Incentive Firm Contract both establish target fees that aim to align the contractor's interests with those of the client, promoting cost efficiency and performance. The Cost-Plus Fixed Fee contract also includes a specified fixed fee, which indicates that a target amount is determined upfront, despite being adjustable based on the actual costs incurred.