Which of the following contract types limits the potential incentive to increase profit through increasing...

TheCMAA Cost Managementsection identifies several contract types and their profit implications. TheCost Plus Fixed Fee (CPFF)contract type establishes a predetermined fixed fee for the contractor, regardless of actual cost fluctuations.

The SOP explains:

“A cost plus fixed fee contract provides the contractor reimbursement for actual allowable costs plus a fixed fee established at the outset of the contract. The fee does not vary with the actual cost, eliminating any incentive to increase costs for additional profit.”

In contrast:

Cost plus a percentage of costencourages higher spending because profit increases with cost.

Time and materialscontracts also risk cost escalation.

Unit pricecontracts carry risk of scope manipulation or overestimation.

Thus,Cost Plus Fixed Feebest limits profit incentive tied to cost growth.