Fixed Price vs Cost Reimbursable
Compare Firm-Fixed-Price (FFP) with a representative Cost-Plus-Fixed-Fee (CPFF) structure and observe how actual cost changes buyer payment, seller profit, cost-risk ownership and contract suitability.
See who bears cost variance under two different commercial structures.
The tool compares the same defined work under an FFP contract and a simplified CPFF cost-reimbursable contract. It separates the cost of performing the work from price, fee and risk allocation so the learner can see the commercial consequence of cost underruns and overruns.
Fixed Price vs Cost Reimbursable — Step by Step
Eight locked stages separate estimate, actual cost, price, fee and contract-fit assumptions before applying a severe cost-overrun challenge.
Establish the Contracting Context
FFP vs CPFF Economics
Reveal the commercial context to begin.
Separate price certainty from cost certainty.
Firm-Fixed-Price (FFP)
The buyer’s payment for the defined scope is predetermined. Seller profit increases when actual cost falls and decreases when actual cost rises. Cost variance therefore sits primarily with the seller.
Cost-Plus-Fixed-Fee (CPFF)
Allowable actual cost is reimbursed and the fixed fee is negotiated independently of actual cost growth. The buyer therefore retains more cost-outturn risk and requires stronger cost administration.
Do not confuse price with expected cost
The estimate represents expected performance cost. The FFP price includes commercial risk/profit assumptions; the CPFF buyer payment depends on actual allowable cost plus the fixed fee.
Selection depends on uncertainty
Clear, stable work generally supports fixed pricing. Uncertain work may justify cost reimbursement when the buyer can provide the required oversight and cannot reasonably define/priced the risk in advance.
FFP Buyer Payment= Fixed Price.
FFP Seller Profit= Fixed Price − Actual Cost.
CPFF Buyer Payment= Allowable Actual Cost + Fixed Fee.
CPFF Seller Profit= Fixed Fee (simplified illustration, assuming all actual cost shown is allowable and reimbursable).
Buyer-payment break-even actual cost= FFP Price − CPFF Fixed Fee.
Build Your Own Commercial Scenario
Experiment Mode is isolated from the guided demonstration. Change all economics and contract-fit assumptions freely and observe the results immediately.
Quick Knowledge Check
FFP vs Cost-Reimbursable Cues
FFP Cost Risk
For a defined scope, the seller normally absorbs actual-cost variance against the fixed price.
CPFF Cost Risk
The buyer reimburses allowable actual cost and therefore retains more cost-outturn exposure.
FFP Profit
Profit = Fixed Price − Actual Cost. Lower cost increases profit; higher cost reduces it and can create loss.
CPFF Fee
The fixed fee remains fixed in this illustration; cost growth does not automatically increase the fee.
FFP Fit
Stronger with clear scope, manageable uncertainty and buyer preference for firm price/risk transfer.
Cost-Reimbursable Fit
Stronger with material uncertainty, difficult-to-price work and sufficient buyer cost/performance oversight.
FFP increases buyer price certainty but exposes seller profit to cost variance. CPFF stabilizes seller fee while passing allowable cost variance to the buyer. The appropriate choice depends on scope definition, uncertainty, risk-transfer objectives and the buyer’s ability to administer the contract.