Exam CAPM topic 1 question 228 discussion

B. Firm fixed price (FFP) A Firm Fixed Price (FFP) contract is the least desirable for a vendor because it places the maximum financial risk on the seller. Under this contract type, the seller agrees to a fixed price for the entire project, regardless of actual costs incurred. If costs exceed the agreed-upon price, the vendor absorbs the loss. This lack of cost protection makes FFP contracts the least attractive option for most vendors. The other contract types offer varying degrees of risk sharing between the buyer and seller.

D. Cost plus award fee (CPAF) Among the contract types listed, Cost plus award fee (CPAF) is typically the least desirable to a vendor. In a CPAF contract, the vendor is reimbursed for allowable costs and paid an additional fee based on the satisfaction of subjective criteria or performance metrics. The fee is subject to the client's discretion and may be awarded based on the client's assessment of the vendor's performance. This contract type introduces uncertainty for the vendor because the amount of the fee is not guaranteed, and it depends on the client's judgment. It can also create challenges in terms of aligning the vendor's goals with the client's objectives. As a result, many vendors prefer other contract types, such as firm fixed price (FFP) or fixed price with economic price adjustment (FPEPA), which offer more predictability and less subjectivity in determining compensation.

the correct answer

FFP all the risks are for vendor. FFPEPA too but has less risks as the prices will be corrected

B-FFP-12.1.1.6