Fixed-price incentive contracts allow parties to negotiate what elements?

Fixed-price incentive contracts are designed to provide both the buyer and the seller with a mechanism for adjusting the total price based on performance and costs incurred during the project. In these types of contracts, the parties negotiate not only the total price but also specific elements like target costs and target profits.

Target costs are established so that the contractor works to minimize costs against this benchmark, fostering efficiency. The contract also includes target profits, which outline the profit that the contractor could earn if they control costs effectively and meet performance targets. This structure incentivizes the contractor to perform well and manage costs, as any cost savings below the target can lead to increased profits.

While other elements such as performance metrics and deadlines, quality standards, and payment terms are important components of contract negotiations, they do not capture the essence of what is specifically negotiable in fixed-price incentive contracts. Those other options do not directly relate to the financial arrangement and incentives that this contract type seeks to establish.