A Cost-Plus Incentive Fee contract specifies what?

In a Cost-Plus Incentive Fee contract, the correct specification includes a comprehensive structure that outlines the financial framework for project execution. This type of contract typically establishes a Target Cost, which serves as a baseline for estimating project costs. Along with this Target Cost, there is a Target Fee, which indicates the profit that the contractor aims to achieve if the project is completed within the target cost.

Moreover, the contract also addresses a Minimum Fee, ensuring that the contractor will receive a certain level of payment regardless of project performance, and a Maximum Fee, which caps the amount the contractor can earn if the costs exceed expectations. This setup incentivizes the contractor to control costs effectively while allowing for potential profit based on performance relative to the set targets.

This structure fosters collaboration between the contractor and the client, encouraging efficient management of resources to stay within the target cost and maximize the earned fee, aligning the interests of both parties for successful project completion.