Fixed-price incentive contract

Definition
The formula for a fixed-price incentive contract focuses upon “the relationship of total final negotiated cost to total target cost” and can include either (1) the target cost, the target profit, and the price ceiling, in the case of firm-target incentives or (2) the initial target cost, the initial target profit, the ceiling price, and the initial profit adjustment formula that is used at an agreed-upon point during performance to establish the target profit, in the case of successive-target incentives.