What does a Cost Plus Fixed Fee Contract (CPFF) entail for the contractor?

A Cost Plus Fixed Fee Contract (CPFF) is structured to cover allowable costs incurred by the contractor along with a specified, predetermined fee. This type of contract ensures that the contractor is reimbursed for their expenses related to the project, which provides a level of security regarding their costs. Additionally, the fixed fee aspect guarantees a profit margin that is established at the outset, regardless of the actual costs incurred to complete the project.

This arrangement is particularly beneficial in projects where costs can be difficult to estimate accurately upfront, as it mitigates the contractor's risk by ensuring they are compensated for costs as they occur. The predetermined fee provides a balance by incentivizing the contractor to manage costs effectively while assuring them a profit.

In contrast, the other options suggest conditions that do not accurately reflect the nature of a CPFF contract. Options implying full financial risk or a solely determined profit margin without considering the allowable costs misrepresent the contractor’s position within this contractual framework.