The CPIF is a theoretically a cost-reimbursable contract. However, with the addition of the share ratio and the incentive fee, thresholds are set for the minimum and max fee that the vendor can achieve. So, if the actual cost was much lesser than the target cost, the sum of the vendor's share of the cost savings plus the target fee will still cap at the max or ceiling fee. Similarly, even if there were major cost overruns, the vendor would be assured of getting the minimum fee. In this particular example, the max and min fee seem to be extraneous information (we don't need to use them).Target cost = 300K, Actual cost = 380KTarget fee = 40K, Max fee = 60K, Min fee = 10K Share ratio = 80/20Cost overrun = (380K 300K) = 80KVendor's share of the cost overrun is 20% of 80K = 16K Vendor's fee = target fee - vendor's share of cost overrun= 40K 16K = 24KWe make sure that the vendor fee is greater than the min fee and not greater than the max fee. So, Answer (b). The vendor will collect 24,000. Minimum and Maximum Fee caps will be useful in the following cases: If the actual costs are more than $450,000, the seller will pay 20% of the $150,000 over target, $30,000. At this point, the sellers fee is at the minimum of $10,000, and the seller will get this amount of profit no matter how much more over-budget the project goes. If the actual costs are less $200,000, the seller collects 20% of the
$100,000 under budget, or $20,000 dollars. The fee will be at the maximum of $60,000, and the seller will get this fee no matter how much more under-budget the project goes.