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Cost Plus Inventive Fee Contract

1. Given the following data, develop an appropriate CPIF pricing arrangement.

Cost Fee
Target $100 $10
Optimistic $ 80 $12
Pessimistic $120 $ 7

a. What should be the maximum fee?

b. What should be the minimum fee

c. What should be the under-target share ratio?

d. What should be the over-target share ratio?

e. What is the range of incentive effectiveness?

2. Given the following data for CPIF pricing arrangement

Target Cost $200
Target Fee $ 16

Share Ratios:

Under target 80/20
Over target 85/15
Maximum Fee $ 26
Minimum Fee $ 10

What is the range of incentive effectiveness?

3. Given the following information regarding a CPIF contract, what would be the final contract price at the different final cost amounts.

Target Cost $2,000,000
Target Fee $ 150,000

Share Ratio:

Under Target 90/10
Over Target 80/20
Maximum Fee $ 240,000
Minimum Fee $ 60,000

a. Final cost is $1,000,000

b. Final Cost is $1,800,000

c. Final cost is $2,150,000

d. Final cost is $2,400,000

Solution Preview

1. Given the following data, develop an appropriate CPIF pricing arrangement.

Cost Fee
Target $100 $10
Optimistic $ 80 $12
Pessimistic $120 $ 7

a. What should be the maximum fee?
Maximum fee should be the fee at the optimistic cost. That fee is $12.

b. What should be the minimum fee
Minimum fee should be the fee at the pessimistic cost. That fee is $7.
c. What should be the under-target share ratio?

Under target share ratio
Contractor share = Scu = (Pt - Po)/(Ct-Co)*-100=(10-12)/(100-80)*-100=10
Government share = 100-Scu=90
under-target share ratio as 90/10.

d. What should be the over-target share ratio?

over target share ratio
Contractor share = Sco = (Pt - Pp)/(Ct-Cp)*-100=(10-7)/(100-120)*-100=15
Government share = ...

Solution Summary

The solution examines the cost plus inventive fee contracts.

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