# 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

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#### 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.