International Project Management Association (IPMA) Practice Exam

A major benefit of a Firm-Fixed-Price contract is:

1. Lower risk for the buyer

2. Higher flexibility in pricing

3. Guaranteed provider availability

4. Reduced administrative burden

The correct answer is: Lower risk for the buyer

A Firm-Fixed-Price (FFP) contract establishes a set price for a project, which means the contractor agrees to deliver the project for that price regardless of the actual costs incurred to complete it. This creates a lower risk for the buyer because the financial exposure is capped, and they are assured that the project will not exceed the agreed-upon cost. In this type of contract, any cost overruns experienced by the contractor are not passed onto the buyer, providing a stable financial arrangement that enables budgeting and planning. This benefit is particularly valuable in projects where cost predictability is crucial. The buyer can confidently plan their expenses without the fear of unexpected increases, knowing that the agreed price will cover the full scope of work as defined in the contract. While options like higher flexibility in pricing, guaranteed availability, and reduced administrative burden might present advantages in different contractual arrangements, they do not specifically highlight the primary advantage associated with a Firm-Fixed-Price contract. The key takeaway here is that FFP contracts provide significant cost certainty, which fundamentally lowers the financial risk for the buyer involved in the contract.