Fixed Price Incentive(FPI)
A contract type that combines a fixed-price base with incentive provisions based on cost, schedule, or performance.
Overview
Fixed Price Incentive (FPI) contracts establish a target cost, target profit, and share ratio. If the contractor performs below target cost, they share in the savings; if they exceed target cost, they share in the overrun up to a ceiling price.
Why It Matters in GovCon
FPI balances risk between the government and contractor while motivating efficiency. Contractors have incentive to control costs without bearing unlimited risk. Understanding FPI structure is essential when negotiating and managing such contracts.
Key Details
- Target Cost/Profit: Establishes baseline for incentive calculation.
- Share Ratio: Defines how savings or overruns are split (e.g., 80/20).
- Ceiling Price: Maximum government liability; contractor absorbs cost above ceiling.
- FPI (Firm Target): Fixed share ratio; no adjustment to target.
- FPIF: FPI Firm Target is a common variant.
Related Terms
- Fixed-Price Contract
- Cost-Plus-Incentive-Fee (CPIF)
- Incentive Contract
- FAR Part 16
More Contracts Terms
A simplified method of filling anticipated repetitive needs for supplies or services by establishing charge accounts with qualified vendors.
A numbered item in a contract that identifies a specific deliverable, service, or unit of work along with its quantity and price.
A contract type where the government reimburses the contractor for allowable costs plus a predetermined fixed fee representing profit.
An order placed against an existing contract for the delivery of supplies or materials.
A contract type where the price is set at award and does not change regardless of the contractor's actual costs, placing maximum risk on the contractor.
Long-term government-wide contracts with commercial firms that provide federal agencies access to products and services at pre-negotiated prices.
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