FPIF contract threshold per PMI
In a Fixed Price Incentive Fee contract, the buyer and seller share cost overruns up to the PTA. Below PTA, the buyer pays their share ratio of overruns. Above PTA, the seller absorbs 100% of additional costs. The ceiling price caps the buyer's total payment. This formula is a PMP exam staple — memorize it.
The Point of Total Assumption (PTA) calculator computes the critical cost threshold in a Fixed Price Incentive Fee (FPIF) contract. Below PTA, the buyer and seller share cost overruns according to the negotiated share ratio. Above PTA, the seller absorbs 100% of additional costs. This formula is a staple of the PMP exam and is essential for contract managers working on incentive-based procurement.
First, calculate the Target Price = Target Cost + Target Fee. Then, PTA = (Ceiling Price − Target Price) / Buyer's Share Ratio + Target Cost. The buyer's share ratio is expressed as a decimal (e.g., 0.60 means the buyer pays 60% of overruns up to PTA). The ceiling price is the maximum the buyer will pay regardless of cost overruns.
If Target Cost = $100,000, Target Fee = $10,000, Buyer's Share = 60%, and Ceiling Price = $130,000: Target Price = $110,000. PTA = ($130,000 − $110,000) / 0.60 + $100,000 = $33,333 + $100,000 = $133,333. This means the seller absorbs all costs above $133,333 — but since the ceiling price is $130,000, the seller is already losing money at that point. The PTA tells the seller exactly where the risk shifts.
The PTA formula appears on nearly every PMP exam because it tests understanding of risk allocation in fixed-price contracts. You may be asked to calculate PTA, identify which party bears risk at a given cost level, or determine the seller's profit at a specific cost. Memorize the formula and practice with different share ratios and ceiling prices.
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