In a Fixed-Price Incentive Fee (FPIF) contract, the buyer assumes most of the risk associated with project cost overruns.
True
False
This statement is false. In a Fixed-Price Incentive Fee (FPIF) contract, the risk is shared between the buyer and the seller, rather than the buyer assuming most of the risk. FPIF contracts are designed to balance risk between both parties.
FPIF contracts typically include a target cost, a target profit, and a ceiling price. If the actual costs are lower than the target cost, the contractor's profit increases. If the actual costs exceed the target cost but are below the ceiling price, the contractor's profit decreases. This structure incentivizes the contractor to control costs while providing some protection for both parties.
The buyer's risk is limited by the ceiling price, which is the maximum amount the buyer will pay. The seller assumes the risk of cost overruns beyond the ceiling price. This arrangement encourages efficient project execution and cost management by the seller while providing some cost certainty for the buyer.
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