PMI Scheduling Professional Certification (PMI-SP) Practice Exam

What signifies a Cost Plus Fixed Fee contract?

1. Reimbursement for all incurred costs with no additional fees

2. Reimbursement plus a fixed additional fee for services rendered

3. An incentive based payment structure

4. Only payment for total material costs used

The correct answer is: Reimbursement plus a fixed additional fee for services rendered

A Cost Plus Fixed Fee contract is characterized by a structure where the contractor is reimbursed for all allowable costs incurred during the project, along with a fixed fee for their services. This means that the contractor will receive payments that cover their actual expenses—such as labor and materials—while also ensuring they obtain a predetermined profit margin, which remains constant regardless of the total project costs. This type of contract is particularly beneficial in situations where project costs are uncertain, allowing flexibility for both parties. The fixed fee aspect ensures that the contractor knows upfront what profit they will earn, providing clarity and stability, while the reimbursement of costs encourages efficient spending since the contractor will seek to stay within budget. In contrast, other options reflect different contractual arrangements or payment structures that do not encapsulate the essence of a Cost Plus Fixed Fee contract. For instance, reimbursement for all incurred costs with no additional fees conveys an approach where the contractor does not earn a profit margin, which is not the case here. Similarly, an incentive-based payment structure implies variability based on performance or savings, which diverges from the fixed nature of this contract type. Lastly, only payment for total material costs excludes any labor or overhead, which is contrary to the comprehensive nature of a Cost Plus Fixed Fee agreement