Certified Professional Public Buyer (CPPB) Practice Test

Which type of contract includes a reward for achieving specific goals?

1. Fixed-price contract

2. Cost-plus contract

3. Incentive contract

4. Time and materials contract

The correct answer is: Incentive contract

An incentive contract is designed specifically to motivate the contractor to perform at a higher level by offering rewards for achieving specific objectives or goals. This can include cost savings, timely completion of tasks, or exceeding specified performance metrics. The incentives may take the form of additional payments, bonuses, or profit-sharing arrangements that are contingent upon the contractor meeting or exceeding the agreed-upon targets. In this type of contract, both the buyer and the seller have aligned interests in achieving efficient and effective project outcomes, making it a valuable tool in public procurement where the cost and quality of work are critical. The structure of incentive contracts fosters collaboration and encourages contractors to innovate or find efficiencies that benefit the overall project. Other contract types, such as fixed-price, cost-plus, and time and materials, do not inherently include a reward mechanism for reaching specific goals, focusing instead on predetermined payment structures or reimbursement of costs without performance-based incentives.