Cost-Plus Fixed Fee (Cpff) Definition
A cost-plus fixed fee (CPFF) is a type of pricing arrangement in which the buyer agrees to pay the seller’s costs, plus a fixed fee. The fixed fee may be a set dollar amount or a percentage of the total project cost.
The CPFF pricing arrangement is often used in government contracts, where the buyer (i.e., the government) wants to minimize its risk and ensure that the seller has an incentive to control costs. In this type of arrangement, the government typically pays all of the costs incurred by the contractor, plus a fixed fee. The government also bears the risk if costs exceed the expected amount.
The main advantage of CPFF for buyers is that they know exactly how much they will have to pay upfront. This type of arrangement also provides some flexibility for sellers, as they can negotiate their fees based on their anticipated costs.
There are some disadvantages to using CPFF arrangements, however. First, it can be difficult to estimate costs accurately at the outset of a project. This can lead to disputes between buyers and sellers over who should bear the risk of cost overruns. Second, CPFF can create an incentive for sellers to inflate their costs in order to earn a higher profit margin.
