NCMA Contract Types and Pricing 1 — Questions and Answers
Question 1: Which contract type places the maximum cost risk on the contractor?
- Cost-Plus-Fixed-Fee (CPFF)
- Firm-Fixed-Price (FFP) (Correct answer)
- Time-and-Materials (T&M)
- Cost-Plus-Award-Fee (CPAF)
Correct answer: Firm-Fixed-Price (FFP)
Under a Firm-Fixed-Price contract, the contractor bears all cost risk because the price is fixed regardless of actual costs incurred.
Question 2: Under a Cost-Plus-Fixed-Fee (CPFF) contract, the fixed fee is:
- A percentage of actual costs that adjusts as costs change
- Determined solely at contract completion based on performance
- Negotiated at contract award and does not vary with actual costs incurred (Correct answer)
- Adjusted upward or downward based on contractor performance ratings
Correct answer: Negotiated at contract award and does not vary with actual costs incurred
The fixed fee in a CPFF contract is negotiated before work begins and remains constant regardless of the actual costs incurred during performance.
Question 3: Which contract type is MOST appropriate when the extent or duration of work cannot be precisely estimated at the time of contract award?
- Firm-Fixed-Price (FFP)
- Fixed-Price with Economic Price Adjustment (FP-EPA)
- Fixed-Price-Incentive-Firm (FPIF)
- Time-and-Materials (T&M) (Correct answer)
Correct answer: Time-and-Materials (T&M)
Time-and-Materials contracts are used when it is not possible to estimate accurately the extent or duration of the work or anticipated costs, making FFP or cost-reimbursement unsuitable.
Question 4: Under FAR, a Time-and-Materials (T&M) contract is required to include:
- A guaranteed minimum fee payable to the contractor upon award
- A ceiling price that the contractor exceeds at its own risk (Correct answer)
- Government approval prior to billing each individual labor hour
- A performance-based incentive fee structure tied to deliverables
Correct answer: A ceiling price that the contractor exceeds at its own risk
FAR requires T&M contracts to include a ceiling price, and any costs above that ceiling are at the contractor's risk, providing a degree of government cost protection.
Question 5: What is the primary feature that distinguishes a Fixed-Price-Incentive-Firm (FPIF) contract from a standard Firm-Fixed-Price (FFP) contract?
- The contractor bears no cost risk whatsoever under FPIF
- The government assumes all cost risk in an FPIF contract
- FPIF has no ceiling price limitation on government payments
- FPIF includes a share ratio to divide cost underruns and overruns between the parties (Correct answer)
Correct answer: FPIF includes a share ratio to divide cost underruns and overruns between the parties
FPIF contracts establish a target cost, target profit, ceiling price, and share ratio so that both parties share in cost savings or cost overruns up to the ceiling price.
Question 6: Which of the following is classified as a cost-reimbursement contract type under FAR?
- Fixed-Price-Incentive-Firm (FPIF)
- Fixed-Price with Economic Price Adjustment (FP-EPA)
- Cost-Plus-Award-Fee (CPAF) (Correct answer)
- Labor-Hour contract
Correct answer: Cost-Plus-Award-Fee (CPAF)
Cost-Plus-Award-Fee (CPAF) is a cost-reimbursement contract in which the government reimburses allowable costs and pays a fee determined by government evaluation of contractor performance.
Question 7: Which statement about Cost-Plus-Award-Fee (CPAF) contract award fee determinations is accurate?
- The award fee amount is fixed and set at the time of contract award
- Award fee determinations are routinely subject to appeal under the Contract Disputes Act
- The award fee is earned automatically upon achieving technical performance thresholds
- Award fee decisions are largely within the government's subjective discretion and are generally not subject to appeal (Correct answer)
Correct answer: Award fee decisions are largely within the government's subjective discretion and are generally not subject to appeal
CPAF award fee determinations are made at the government's discretion based on subjective performance evaluations and are generally not appealable under the Contract Disputes Act.
NCMA Contract Types and Pricing 1
Which contract type places the maximum cost risk on the contractor?