Point of Total Assumption (PTA)
The Point of Total Assumption (PTA) comes up in a specific kind of contract called a Fixed Price Incentive Fee (FPIF) contract. In this arrangement, the buyer and seller agree on a target cost (the expected cost of the work), a target price (target cost plus an agreed profit), a ceiling price (the absolute maximum the buyer will ever pay), and a sharing ratio (a rule for splitting any cost overrun or savings between buyer and seller). The PTA is the cost level at which the seller starts to bear 100% of any additional overrun.
You calculate it in words like this: take the ceiling price and subtract the target price to see how much room is left before the buyer stops paying more. Divide that gap by the buyer's share of the overrun (their percentage in the sharing ratio, written as a decimal). Then add the target cost. The result is a cost figure — the PTA.
Reading it is straightforward: as long as actual costs stay below the PTA, buyer and seller share overruns according to the ratio. Once costs climb past the PTA, every extra dollar is paid entirely by the seller, because the buyer has hit their ceiling. A project manager uses the PTA to understand exactly where the financial risk shifts fully onto the seller — a useful early-warning line to watch as costs rise.
Think of it like a phone plan with a spending cap. Up to a point, you and your family share the extra data charges. But once the bill hits the cap, the phone company (the seller here) eats every additional cost — you simply won't pay a penny more than your agreed maximum.
Suppose an FPIF contract has: target cost = $100,000, target profit = $10,000 (so target price = $110,000), ceiling price = $130,000, and a sharing ratio of 80/20 (buyer pays 80% of overruns, seller pays 20%). Step 1: ceiling − target price = $130,000 − $110,000 = $20,000. Step 2: divide by the buyer's share (0.80): $20,000 / 0.80 = $25,000. Step 3: add the target cost: $25,000 + $100,000 = $125,000. So the PTA is $125,000. This tells the manager that if actual costs reach $125,000, any spending beyond that point is entirely the seller's burden — the buyer will never pay more than the $130,000 ceiling.
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