PMP Formula of the Week: Fixed-Price Incentive Fee Contract

As the seller, you are completing a project under a fixed-price incentive fee contract, with a fixed price of $130,000. The incentive (or penalty) is set at $2,000 per week for each week that the project is under (or over) schedule. When you deliver the project two weeks late, how much money will you receive?

A. $130,000
B. $134,000
C. $126,000
D. $138,000

Reveal Answer

The correct answer is C.

Answer C, $126,000, is correct because in a fixed-price incentive fee contract, the agreed contract price will be increased or decreased based on the terms of the incentive or penalty and the seller’s performance.

The formula is fixed price +/– seller’s incentive or penalty
$130,000 – ($2,000 x 2 weeks)
$130,000 — $4,000
$126,000

Related Resources
PMP Exam Prep Mobile App
Project Management White Papers

Related Courses
IT Project Management
Project Management Fundamentals
Project Management, Leadership, and Communication
PMP Exam Prep Boot Camp

PMP Formula of the Week Series

• PMP Formula of the Week: Forecasting a Necessary CPI
• PMP Formula of the Week: Forecasting a Necessary CPI Based on an ETC
• PMP Formula of the Week: Ahead or Behind Schedule
• PMP Formula of the Week: Point of Total Assumption
• PMP Formula of the Week: Rent, Lease or Buy?
• PMP Formula of the Week: Risky Task
• PMP Formula of the Week: Earned Value Management Methodology
• PMP Formula of the Week: Schedule Performance Index of 1
• PMP Formula of the Week: TCPI
• PMP Formula of the Week: Fixed-Price Incentive Fee Contract

from
CERTIVIEW