Understanding the Mechanics of Fixed-Price Incentive (Firm Target) (FPIF) Contracts (2024 Update)

Client Code Required

Federal Acquisition Regulation (FAR) 16.403-1 provides the following description of an FPIF contract but does not provide insight to contractors on how to structure the FPIF pricing arrangement or alter the allocation of cost risk between the contractor and government.

An FPIF contract specifies a target cost, a target profit, a price ceiling (but not a profit ceiling or floor), and a profit adjustment formula. These elements are all negotiated at the outset.

This webinar provides insight into the mechanics of FPIF contracts and a framework to analyze proposed FPIF contract elements and pricing arrangements. Additionally, Mr. Cuskey will explain and demonstrate how contractors can alter FPIF pricing arrangements to shift greater cost risk onto the government and improve their potential profitability.

Here is a summary of what you’ll learn:

• Factors affecting contract type selection.
• Major differences between fixed-price and cost-reimbursement contracts and the degree and timing of risk assumed by a contractor under various contract types.
• The criteria for using FPIF contracts, regulatory limitations, contract elements, and typical applications in government contracts.
• The contractor’s performance obligations under FPIF contracts.
• How FPIF profit adjustment formulas and cost-sharing ratios work.
• How to calculate and shift the FPIF’s Point of Total Assumption (PTA).
• How to calculate the final price and profit based on the FPIF pricing arrangement and the actual costs incurred under the contract.
• How to analyze proposed FPIF pricing arrangements.
• How a business can alter the FPIF contract elements to produce a more favorable pricing arrangement, shift more cost risk onto the government and increase their potential profits.

Who is the target audience?

• New and seasoned government contractors who may have developed new products or systems based upon a prototype and are concerned about the risk of performing initial and early production under a Firm-Fixed Price Contract.
• Government contractors who want to better understand the mechanics of FPIF contracts and how to structure more favorable FPIF pricing arrangements.