ABSTRACT
Effective cost and risk management is essential for the success of large infrastructure projects, as demonstrated by a long history of cost overruns. In order to achieve cost transparency, risk-based probabilistic approaches are needed to determine the probability that project delivery can be accomplished within cost and schedule goals. In addition to some owners moving to a more collaborative and incentivized project environment, a significant number of owners and agencies are also considering alternative contracting models to deliver their projects. This paper describes the mechanics of Fixed-Price-Incentive-Fee (FPIF) firm target price contracts, provides a framework for analyzing such contracts, and demonstrates how FPIF pricing arrangements (pain/gain mechanism, target cost, ceiling cost, etc.) can be applied with a risk-based probabilistic approach.
