According to the PMBOK® Guide, specifically within Project Procurement Management, a Cost Plus Fixed Fee (CPFF) contract is a type of cost-reimbursable contract where the buyer pays the seller for all allowable costs (as defined in the contract) plus a fixed fee.

The Fixed Fee: The fee is calculated as a percentage of the initial estimated project costs. A critical characteristic of this contract is that the fee amount remains constant (fixed) unless the project scope changes. It does not change based on the seller ' s actual performance or actual costs.

Risk Allocation: In this arrangement, the buyer carries the risk of cost overruns, as they must reimburse the seller for all legitimate costs. However, because the fee is fixed, the seller has no incentive to unnecessarily inflate costs, as their profit does not increase with higher spending.

Usage: CPFF contracts are typically used when the scope of work is not well-defined or involves high risk, such as in research and development projects where the final outcome is uncertain.

Analysis of Other Options:

B. Cost Plus Incentive Fee Contract (CPIF): In this type, the seller is reimbursed for costs, but the fee is adjusted based on whether the seller meets specific performance targets (like cost savings). It involves a sharing formula (e.g., 80/20) rather than a fixed payment.

C. Firm Fixed Price Contract (FFP): This is the opposite of a cost-reimbursable contract. The price is set at the beginning and does not change regardless of the seller ' s costs. The seller carries all the cost risk.

D. Fixed Price with Economic Price Adjustment Contract (FP-EPA): This is a fixed-price contract that allows for pre-defined adjustments to the contract price due to changed conditions, such as inflation or cost increases for specific commodities (e.g., fuel or steel), over a long-term period.