3806-Contract Types, Incentives, and Risks

Question 1

Can the cost-plus-a-percentage-of-cost system of contracting ever be used?

Answer 1

Never

Question 2

When are Fixed Price with Economical Price Adjustment FPEPA contracts used?

Answer 2

Market or labor conditions are projected to be unstable during an extended period of contract performance

Contingencies that would otherwise be included in the contract price can be identified and separated in the contract by segregated line items

Question 3

What elements are negotiated at the outset of a Fixed-Price Incentive (firm target) Contract?

Answer 3

Target cost
Target profit
Ceiling price
Profit adjustment formula

Question 4

What elements are negotiated at the outset of a Fixed-Price Incentive (successive targets) Contract?

Answer 4

Target cost 
Target profit
Production point 
Ceiling price
Profit adjustment formula

Question 5

What elements are in a Cost Plus Incentive Fee Contract?

Answer 5

Target Cost/Target Fee
Sharing Formula
Minimum Fee/Maximum Fee

Question 6

What is the least preferred type of contract?

Answer 6

Time & Material Contract

Question 7

What is the most preferred type of contract?

Answer 7

Fixed Price Contract

Question 8

What is the definition of a Letter Contract?

Answer 8

A written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services.

Question 9

What is a Time & Materials Contract?

Answer 9

Least preferred contract type

Used when not possible to estimate the extent, duration and cost of the work to any reasonable degree of confidence

Use only if no other contract type possible, and only if the contract includes a ceiling price

Question 10

What type of contract is always used for commercial items?

Answer 10

Fixed Price Contract