Which contract type ties changes in price to an objective benchmark?

Which contract type ties changes in price to an objective benchmark?

• A. Firm Fixed Price With Economic Adjustments
• B. Fixed Price Re-determination
• C. Price In Effect At Time Of Shipment
• D. Time And Materials

Answer: (A)

The key idea is pricing that adjusts with an external, published measure of cost changes. A contract that uses a firm price plus economic adjustments ties the price to an objective benchmark—typically a government or industry index like the Consumer Price Index or Producer Price Index. The baseline price is set as a firm amount, but over the life of the contract adjustments are made according to how the chosen index moves. If inflation rises, the price goes up within the contract’s defined rules; if it falls, the price can adjust downward, usually within caps or floors. This approach keeps the contract fair over longer periods when costs shift, without renegotiating everything from scratch. Other contract types don’t rely on a published benchmark: cost-based re-determination uses actual costs to reset price, not an external index; price in effect at time of shipment fixes the price at shipment with no ongoing adjustment; and time and materials bill by labor and material rates rather than tying to a benchmark.

The key idea is pricing that adjusts with an external, published measure of cost changes. A contract that uses a firm price plus economic adjustments ties the price to an objective benchmark—typically a government or industry index like the Consumer Price Index or Producer Price Index. The baseline price is set as a firm amount, but over the life of the contract adjustments are made according to how the chosen index moves. If inflation rises, the price goes up within the contract’s defined rules; if it falls, the price can adjust downward, usually within caps or floors.

This approach keeps the contract fair over longer periods when costs shift, without renegotiating everything from scratch. Other contract types don’t rely on a published benchmark: cost-based re-determination uses actual costs to reset price, not an external index; price in effect at time of shipment fixes the price at shipment with no ongoing adjustment; and time and materials bill by labor and material rates rather than tying to a benchmark.