1 / 28

Types of Contracts: Cost, Schedule, and Risk Selection

This article discusses the different types of contracts based on cost, schedule, and risk factors, including fixed-price, cost-plus-fixed-fee, cost-plus-percentage-fee, guaranteed max-shared savings, fixed-price incentive-fee, and cost-plus-incentive-fee contracts.

pdan
Download Presentation

Types of Contracts: Cost, Schedule, and Risk Selection

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Types of contract selection based upon following: • Overall degree of Cost & Schedule Risk • Type & complexity of Requirement (technical Risk) • Extent of Price Competition • Cost/Price Analysis • Urgency of Requirements • Performance period • Contractor's Responsibility (and Risk) • Contractor's Accounting System (Report Earn Value reporting?) • Concurrent Contract (contract take A back seat to existing work?) • Extent of Subcontracting (how much work contractor out source?)

  2. General six types of contracts : Fixed-price (FP), Cost -plus-fixed-fee (CPFF), Cost-plus-percentage-fee (CPPF), Guaranteed Max-Shard Savings (GMSS), Fixed-price Incentive- Fee (FPIF), Cost-Plus-Incentive-Fee (CPIF)

  3. First Category Fixed-price or Lump-sum contract

  4. Contractor carefully “Estimate Target Cost”. Contractor required to Perform work at negotiated Contract Value.

  5. If “Estimated target cost” is low then “Total Profit reduced” & may vanish. Contractor may not be able to “underbid competitors” So Contractor assumes a Large risk.

  6. Lump-sum Provides “Max Protection to Owner” for ultimate “Cost of Project”. Disadvantage: Requiring a Long Period For Preparation & Adjudications of Bids.

  7. Because of a Lack of knowledge of Local conditions, all contractors Include Excessive Contingency.

  8. Change Requested By owner after “Award of contract” Lead to Troublesome & Sometimes “Costly extras”

  9. 2nd Category Cost-Plus- Fixed-Fee (CPFF)

  10. Cost Plus Fixed Fee (CPFF) If Accurate Pricing Not Possible in Any Other way. So we use CPFF, so Cost may vary but Fee remains same. Contractor agrees only to use Best Efforts to Performance Good/Poor Performance Rewarded equally.

  11. Total Le/$ Profit likely To Produce Low “Rate of Return” reflects Small “Amount of Risk”By contractor. Fixed Fee - small % Age Of “Tot/true Cost”. CPFF Required Company books be audited.

  12. 3: Cost-Plus-Percentage – fee Contract

  13. Provides Maximum flexibility to owner Permits “Owner & Contractor” to work together cooperatively on All “Technical, Commercial, Financial Problems”. -No Financial Assurance of “Ultimate Cost”.

  14. “No financial incentive to contractor” this because of “High building cost” (Compared with other forms). Only meaningful Incentive can be: • Inc competition & • Prospects for Follow-on contracts.

  15. 4th Category of Contracts “Guaranteed Maximum-Share Savings”

  16. Contractor-Gets “Fixed Fee” for his “Profit” and Reimbursed for the “Actual Cost” of Engineering, Materials, Construction Labor, all Other Job Costs, But only up to “Ceiling figure established” as “Guaranteed maximum"

  17. Savings below the" Guaranteed Maximum”are Shared between “Owner & Contractor”, where as Contractor Assumes the Responsibility For any “Overrun beyond” Guaranteed “Maximum Price”.

  18. Contract form Combines advantages as well as disadvantages of Both “Lump Sum” & “Cost-Plus Contracts”. Best form for Negotiated Contract as it Establishes a Maximum Price At Earliest Possible Date

  19. Though contract awarded without “Competitive Tenders”. -Yet Protects owner Against being Overcharged,

  20. Unique in that “Owner & Contractor” shareFinancial Risk & Both haveReal incentive To Complete Project At lowest “Possible Cost”.

  21. 5th Category of Contract Fixed-Price- Incentive-fee Contracts

  22. These are Same as “Fixed-Price contracts” Except have some “Provision for Adjustment” of the “Total Profit” by a formula. This Formula Depends on “Final Total Cost” at Completion of Project

  23. Formula “Agreed to” in advance By “Owner & Contractor”. To use this Both “Project or Contract” Requirements Must be firmly established

  24. Provides An incentive to Contractor To: a) Reduce Cost b) Increase profit Both “Owner & Cost” Share in “Risk & Savings”.

  25. 6th Cat. “Cost-Plus-Incentive- Fee Contracts”

  26. Same as: “Cost” Plus Contracts, Except have “Provide for” Adjustment of “Fee as” Determined By a Formula: Compares “Total Project Cost to Target Cost”. Formula agreed to in advance by “Owner & Contractor”. Used for “Long Duration” or “R&D Type Project”.

  27. 5. Contract Admin Cycle Contract Administrator is Responsible for Compliance By the Contractor to Contract's “Terms & Conditions” To Make Sure Final Product is “Fit for Use”.

  28. Functions of contract administrator Include: Change Management Specification interpretation Adherence to Quality Warranties Subcontractor Management Production surveillance Waivers Contract breach Resolution of disputes Project Termination Payment “Schedule” Project Closeout

More Related