Point of total assumption

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The point of total assumption (PTA) is a price determined by a fixed price plus incentive fee contract (FPIF) above which the seller bears all the loss of a cost overrun. It is also known as the "most pessimistic cost" because it represents the highest point beyond which costs are not expected to rise, given reasonable issues. If costs go beyond the PTA, they are assumed to be due to mis-management rather than a worst-case set of difficulties. The seller bears all of the cost risk at PTA and beyond. In addition, once the costs on an FPIF contract reach PTA, the maximum amount the buyer will pay is the ceiling price.

Any FPIF contract specifies a target cost, a target profit, a target price, a ceiling price, and one or more share ratios. The PTA is the difference between the ceiling and target prices, divided by the buyer's portion of the share ratio for that price range, plus the target cost.

PTA = ((Ceiling Price - Target Price)/buyer's Share Ratio) + Target Cost

For example, assume:

Target Cost:	2,000,000
Target Profit:	200,000
Target Price:	2,200,000
Ceiling Price:	2,450,000
Share Ratio:	80% buyer–20% seller for overruns, 50%–50% for underruns

PTA = ((2,450,000 - 2,200,000)/ 0.80) + 2,000,000 = 2,312,500

This is a term used in project management when managing specific fixed price contracts.

For cost reimbursable contract, Point of Total Assumption (also referred to as break point) is calculated by the following formula: PTA = [{(Ceiling Price - (Target Cost+Fixed fee))/Benefit Sharing} + Target Cost]

Example: target Cost = 1,000,000; Fixed Fee = 100,000; benefit/cost sharing = 80%/20%; Price ceiling = 1,200,000

PTA = {(1,200,000 - (1,000,000+100,000))/0.80}+1,000,000 = 1,125,000 Contributed by Dipanjan

The idea of a "Point of Total Assumption" is an extremely recent one, and even high-level government logistics specialists often don't know what the term means, or how to calculate it. In the government's efforts to cut cost overruns, however, the PTA is being introduced to FPIF contracts on an increasingly wide basis. Moreover, high-level professional examinations for industry certification, such as the Project Management Professional certification, are beginning to test applicants' knowledge of this concept and its application.