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Cost Plus Fixed Fee Contract (CPFF)

A cost-reimbursable agreement where the buyer pays the seller's allowable, contract-defined costs and adds a predetermined fixed fee as profit.

Key Points

  • Buyer reimburses allowable costs; profit is a fixed fee agreed at contract award.
  • The fixed fee does not vary with actual cost performance; it changes only through approved contract modifications.
  • Most cost risk rests with the buyer; the seller is protected on profit but must manage costs responsibly.
  • Best used when scope or effort is uncertain (e.g., R&D), and strong cost tracking and audits are required.

Example

A government agency hires a vendor to develop a novel prototype under CPFF. The contract allows reimbursement of all allowable labor, materials, and testing costs, plus a fixed fee of $300,000. If allowable costs end up at $4.2M, the total paid is $4.5M; if costs are $3.8M, the total is $4.1M. In both cases, the fee remains $300,000.

PMP Example Question

Which contract type pays the seller for allowable costs and provides a profit that remains constant regardless of actual costs?

  1. Cost Plus Fixed Fee (CPFF)
  2. Cost Plus Incentive Fee (CPIF)
  3. Firm Fixed Price (FFP)
  4. Time and Materials (T&M)

Correct Answer: A — Cost Plus Fixed Fee (CPFF)

Explanation: In CPFF, the buyer reimburses allowable costs and pays a fixed profit fee that does not change with actual cost outcomes.

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