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Hello, Namaste, Konnichiwa!! Welcome from Sunny Sensei!! Today we will talk about fixed price incentive fee contracts or the FPIF. In fixed price incentive fee contracts the seller and the buyer agree upon the target cost the target profit and the target price. Target cost plus target profit equals target price. Sounds similar to firm fixed price contracts!! Well, the similarity ends here. In FPIF the contract also defines certain criteria based on which the performance of the seller is evaluated at the end of the project. These criteria are referred to as incentives. If these are not met, seller faces a penalty. Penalty is a negative incentive and makes the actual profit less than the target profit. Sellers profit takes a hit. If these criteria are met, seller gets an additional fee as an award. This is a positive incentive. Actual profit is clearly more than the target profit. Higher profit means buyer has to pay more or the actual price is more than the target price. But the actual
