The project fixed price incentive (FPI) contract imposes either penalty or incentive for cost excess or cost savings.
However, problems arise with target price and refunding rate of the project, which are determined by negotiation and often
require compromise with an unavoidable, unfair contract. In this paper we propose an analytical model that can resolve
the
unfair
contract dealing of FPI.
Our objective is to find an optimal solution to maximize total profit and to determine a
target price in the FPI
approach. We use cooperative game theory and
compare results with
Firm Fixed Price (FFP)
approach to
demonstrate the significance of using the proposed model for price negotiation.  --3rd International Conference on Industrial Engineering and Operations Management (IEOM 2012)