In the contract, if the supplier can demonstrate actual cost savings through production efficiencies or substitution of materials, the resulting savings from the initial price targets are shared between the supplier and the purchaser at a predetermined rate.

C. Fixed price with incentive

Explanation:

In the fixed price with incentive contract, if the supplier can demonstrate actual cost savings through production efficiencies or substitution of materials, the resulting savings from the initial price targets are shared between the supplier and the purchaser at a predetermined rate.

Fixed-price incentive contract refers to a fixed-price contract which provides for adjusting profit and establishing the final contract price by application of a formula based on the relationship of total final negotiated cost to total target cost. It provides for the adjustment of the contract price and profit.

The amount of the adjustment is determined by a formula which is based on the relationship between total negotiated cost and the target cost or the actual cost, or some other factors.

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