Practice Quiz

Risk Management Professional Exam Prep

Category - Risk Management

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Ted is negotiating a 10 year contract with the US government to provide educational services. The government wants a fixed price project. However, Ted is extremely concerned about the possibility of inflation given the increase in government spending. Ted should suggest what type of contract?
  1. Fixed price with incentive fee
  2. Cost plus fixed fee
  3. Cost plus incentive fee
  4. Time and material
  5. Fixed price with economic price adjustment
Explanation
Answer: e - A fixed price with economic price adjustment contract allows for fees to be adjusted based on an established index (usually of inflation).

Key Take Away: Vendors signing multi-year contracts are crazy not to include this. Even if inflation or cost increases don’t appear to be on the horizon, it is an unnecessary risk to be exposed to. In general, this is an accepted practice to protect project profits.
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