CAPM (Certified Associate in Project Management) Practice Exam

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Which type of fixed-price contract provides financial incentives tied to achieving agreed upon performance metrics?

  1. Fixed-price contracts

  2. Firm fixed-price contracts

  3. Fixed-price incentive fee contracts

  4. Cost-reimbursable contracts

The correct answer is: Fixed-price incentive fee contracts

Fixed-price incentive fee contracts provide financial incentives tied to achieving agreed upon performance metrics. This type of contract encourages the contractor to meet or exceed specific performance targets such as cost, schedule, or quality standards. In these contracts, the final price includes a base amount and an incentive fee based on the contractor's performance. This setup aligns the interests of both the buyer and the seller towards achieving project success. On the other hand: - Fixed-price contracts (Option A) provide a set price for the project with no financial incentives tied to performance metrics. - Firm fixed-price contracts (Option B) have a set price that is not subject to adjustment based on performance metrics. - Cost-reimbursable contracts (Option D) involve the buyer reimbursing the seller for the seller's actual costs, with or without a fee.

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