A project manager for a large manufacturing company is working on a project that

Question

A project manager for a large manufacturing company is working on a project that calls for a new building to be constructed to house a new clean system manufacturing process that is critical to the success of the project. Construction is not a core competency of his company. His team has the ability to create a detailed SOW with liquidated damages in the event that specific deliverables are delivered on time. The PM is in the Plan Procurements phase of the project, and needs to select a contract type for this work. Which of the following is the best type of contract for this situation?

        a. FP (Fixed price)

        b. CPFF (Cost plus fixed fee)

        c. CPIF (Cost plus incentive fee)

        d. T&M (Time and materials)

Explanation / Answer

The correct option is Cost-Plus Incentive-Fee (CPIF). This contract is used when an objective relationship can be established between the fee and different performance measures. The performance measures include actual costs, delivery dates, and performance benchmarks. It is typically used for Research and development of the prototype for a major system.

Hence, the correct option is C. Cost plus incentive fee.

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