What is Fixed Price Incentive Fee in SAP PSM-GPR - Procurement for Public Sector?

SAP Term: Fixed Price Incentive Fee

• Component: PSM-GPR

• Component Name: Procurement for Public Sector

• Description: A pricing arrangement in which payment by an organization to a supplier consists of three components: Target supplier costs A target fee for providing the requested goods or services, which is adjusted within specified limits, according to the real supplier costs An overall top limit on the total price This is similar to the Cost Plus Incentive Fee arrangement, except the fixed limit reduces the organization's risk. There are two versions of this pricing arrangement: FPI with firm targets FPIF, where target cost and target fee are agreed at the outset FPI with successive targets FPIS, where one or more dates are agreed when the target cost and target fee will be fixed. This might typically be used where trials have to be performed before realistic schedules can be decided.

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• Key Concepts: 
  Fixed Price Incentive Fee (FPIF) is a type of contract used in public sector procurement. It is a combination of a fixed price and an incentive fee, which is based on the performance of the contractor. The contractor is paid a fixed price for the work, plus an additional fee based on the performance of the project. This type of contract is used when there is uncertainty about the cost or performance of the project.
  
  How to use it: 
  In order to use an FPIF contract, the public sector organization must first define the performance criteria that will be used to determine the incentive fee. This criteria should be measurable and objective, and should be related to the goals of the project. Once this criteria has been established, the public sector organization can then negotiate a fixed price with the contractor, as well as an incentive fee that will be paid if the contractor meets or exceeds the performance criteria.
  
  Tips & Tricks: 
  When negotiating an FPIF contract, it is important to ensure that both parties understand what is expected from each other. The public sector organization should clearly define what performance criteria will be used to determine the incentive fee, and should also ensure that these criteria are measurable and objective. The contractor should also understand what performance is expected in order for them to receive the incentive fee.
  
  Related Information: 
  The use of FPIF contracts has become increasingly popular in public sector procurement due to their ability to provide incentives for contractors to perform well on projects. For more information on FPIF contracts, please refer to the Federal Acquisition Regulation (FAR) Part 16.