Project Management Knowledge

Fixed-Price-Incentive-Fee Contract

The term firm fixed price contract refers specifically to a type or variety of fixed price contract where the buyer or purchaser pays the seller or provider a fixed amount, however that this particular set amount may waver of vary if the seller meets some sort of pre designated criteria related to the performance of the seller. There are benefits of this type of contract to both the buyer and the seller. To the seller, it is beneficial because it typically allows for the seller or provider to charge a reasonable base fee, yet also allows for exceptional performance to be rewarded further. However, for the buyer that also provides a very tangible benefit. The buyer typically will be paying a very reasonable base fee up front, but there is of course the chance that the price will go up in the future. However, in the event that the price goes up, it can only go up based on good performance by the seller, which is a good thing overall.’

This term is defined in the 3rd and the 4th edition of the PMBOK.

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