What is the key concern regarding signed contracts that are cost-plus fixed fee types?

The key concern regarding cost-plus fixed fee contracts is that the seller may not prioritize cost management. In this type of contract, the seller is reimbursed for all legitimate costs incurred during the project, along with a fixed fee that is agreed upon in advance. Since the seller is guaranteed compensation for all costs, there may be less incentive for them to manage those costs effectively. This can lead to potential inefficiencies and higher-than-expected expenses, as the seller may not feel the need to exercise strict cost controls.

This concern stems from the nature of cost-plus contracts, where the financial risks are largely transferred to the buyer. Therefore, the motivation to manage costs effectively could diminish since the seller knows they will be reimbursed regardless of the amount spent. In project management, maintaining a focus on cost efficiency is crucial to staying within budget and ensuring that resources are utilized optimally.