PMI Scheduling Professional Certification (PMI-SP) Practice Exam

Which type of contract allows sellers to increase pricing based on supply and demand?

1. Firm Fixed Price

2. Fixed Price Incentive Fee

3. Fixed Price with Economic Price Adjustment

4. Cost Plus Award Fee

The correct answer is: Fixed Price with Economic Price Adjustment

The Fixed Price with Economic Price Adjustment contract is designed specifically to account for changes in economic conditions that affect pricing. Unlike a Firm Fixed Price contract, where the price is set and cannot change regardless of external factors, the Fixed Price with Economic Price Adjustment allows adjustments to the contract price in response to fluctuations in market conditions, such as changes in labor costs, material costs, or inflation. This type of contract aligns the interests of both the buyer and seller in situations where there is significant uncertainty regarding future costs. The seller is protected from unpredictable cost increases, while the buyer benefits from potentially lower initial costs and the ability to negotiate advantageously in changing market conditions. In contrast, the other contracts mentioned, such as Firm Fixed Price, Fixed Price Incentive Fee, and Cost Plus Award Fee, do not provide the same flexibility for price adjustments based on supply and demand dynamics.