How is the fixed fee established in a cost plus fixed fee arrangement?

In a cost plus fixed fee arrangement, the fixed fee is predetermined and established at the time of contract award. This is a critical aspect of this payment structure, as it allows for the contractor to receive reimbursement for the actual costs incurred in completing the project, plus an agreed-upon amount which does not change based on the final costs. The fixed fee is designed to incentivize the contractor to manage costs effectively while providing them with a guaranteed profit margin.

The nature of this arrangement means that, while the costs might vary based on the project's needs, the fixed fee remains constant throughout the project's duration once it's set. This clarity benefits both the owner and the contractor, as it creates a transparent expectation regarding compensation. The other options touch on variations of how fees might be handled, but they do not reflect the stability and pre-established nature of the fixed fee in this specific contractual context.