A project manager is considering various contract types for a new software development project. Which of the following contract types transfers the highest risk to the seller?
Cost Plus Fixed Fee (CPFF)
Fixed Price Incentive Fee (FPIF)
Firm Fixed Price (FFP)
Time and Materials (T&M)
The correct answer is Firm Fixed Price (FFP) contract. This type of contract places the maximum risk on the seller because the price is set at the beginning and does not change regardless of the seller's costs. The seller bears all cost risk and must absorb any cost overruns.
In contrast:
Understanding contract types and their associated risk allocation is crucial for project managers when making procurement decisions.
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