A firm fixed-price contract encourages the contractor to do what?

A firm fixed-price contract is structured to provide a set price for a defined scope of work, which means that the contractor takes on the risk of cost overruns. This type of contract incentivizes the contractor to effectively manage and contain costs, as any savings they achieve below the agreed-upon price can translate into increased profitability for them. Therefore, the contractor's motivation is to find efficiencies, improve productivity, and manage resources wisely to ensure the project remains within budget while still delivering the work as specified. In doing so, they can retain a larger portion of the payment for themselves.

In this context, the other options do not align with the nature of a firm fixed-price contract. Increasing prices based on market trends would undermine the fixed-price agreement, while reducing the quality of work is counterproductive and could lead to penalties or loss of future contracts. Seeking additional funding sources is also not in alignment, as the profit potential lies in controlling existing costs rather than pursuing outside funding.