Certified Professional Contract Manager (CPCM) Practice Exam 2026 - Free CPCM Practice Questions and Study Guide

A fixed price incentive (successive target) contract is characterized by its structure, which includes a target cost that can be adjusted, as well as the profit margin tied to performance outcomes. This type of contract encourages the contractor to manage costs efficiently since the final profit or loss can be influenced by their ability to control expenses relative to the target. By establishing a target cost, both parties have a clear understanding of expected expenditures, and the contract incentivizes the contractor to either keep costs below that target to enhance profitability or become responsible for any overages beyond the predetermined elements.

The option regarding complete price freedom during fulfillment does not accurately reflect the nature of fixed price incentive contracts, as these contracts inherently involve a structure that limits price flexibility by setting targets. The mention of a predetermined fixed price for all future costs would describe a standard fixed-price contract, which lacks the incentive mechanism that adapts based on cost performance. Finally, the idea that such contracts are only suitable for non-recurring services overlooks their versatility; they can indeed be used for various project types, including ongoing services, as long as the expected costs can be reasonably estimated and justified.