PMP Mock Exam 1

PMP Mock Exam 1

Think this question's correct answer is wrong as presented and should be CPFF:

A project manager is negotiating a contract for research and development work where the scope is highly uncertain and difficult to define upfront. The organization wants the seller to be reimbursed for all allowable costs and receive an additional fee that remains constant regardless of the seller's cost performance.

What contract type should the project manager use?

Correct answer

Cost Plus Percentage of Cost (CPPC)

Your answer is incorrect

Cost Plus Fixed Fee (CPFF)

Cost Plus Incentive Fee (CPIF)

Firm Fixed Price (FFP)

Overall explanation

Cost Plus Percentage of Cost (CPPC) contracts reimburse the seller for all allowable costs and pay a fee calculated as a percentage of those actual costs. For example, if the contract specifies 10% fee and actual costs are $100,000, the seller receives $110,000 total. However, CPPC contracts are generally discouraged and often prohibited for government work because they create perverse incentives. The higher the seller's costs, the higher their fee, so sellers have financial motivation to increase rather than control costs. This misalignment makes CPPC the least desirable cost reimbursable contract type, though it may occasionally be used when no other arrangement is feasible.

Why the other options are not correct:

Cost Plus Fixed Fee (CPFF) provides a fixed fee amount that doesn't change based on costs, which is what the scenario describes wanting rather than CPPC where the fee varies with costs.

Cost Plus Incentive Fee (CPIF) adjusts the fee based on cost performance against targets using a share ratio, providing incentives for cost control rather than the constant fee described.

Firm Fixed Price (FFP) establishes a total price for defined scope, inappropriate for highly uncertain work and doesn't provide cost reimbursement or separate fees as described.

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PMP Mock Exam 1