HKSM
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?
- Cost Plus Fixed Fee (CPFF)
- Cost Plus Incentive Fee (CPIF)
- Firm Fixed Price (FFP)
- 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.
