From the buyer’s perspective, the _____ is the least desirable among all contracts because the supplier has no incentive to decrease costs.Group of answer choicesCost plus award fee (CPAF)Cost plus incentive fee (CPIF)Cost plus percentage of costs (CPPC)Cost plus fixed fee (CPFF)
Question
From the buyer’s perspective, the _____ is the least desirable among all contracts because the supplier has no incentive to decrease costs.Group of answer choicesCost plus award fee (CPAF)Cost plus incentive fee (CPIF)Cost plus percentage of costs (CPPC)Cost plus fixed fee (CPFF)
Solution
From the buyer's perspective, the Cost Plus Percentage of Costs (CPPC) is the least desirable among all contracts because the supplier has no incentive to decrease costs.
Here's why:
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In a CPPC contract, the supplier is reimbursed for all allowable costs plus a percentage of these costs as profit. This means that the more costs the supplier incurs, the more profit they make.
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This type of contract provides no incentive for the supplier to control costs. In fact, it encourages the opposite behavior - the supplier can increase their profit by increasing their costs.
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In contrast, other types of cost-plus contracts provide some incentive for cost control. For example, in a Cost Plus Fixed Fee (CPFF) contract, the supplier's profit is a predetermined fixed amount, regardless of the actual costs. In a Cost Plus Incentive Fee (CPIF) contract, the supplier's profit is tied to performance targets, including cost control.
Similar Questions
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