| Contract Types and Risk | 1. Fixed Price 2. Cost-Reimbursable 3.Time & Material |
|
CR |
Buyer has risk, as total cost are unknownYou are buying “what to do” from seller. |
|
Cost plus fee or Cost Plus Percentage of Cost (CPPC) |
No valid for federal contracts. Sellers are not motivated to control cost, used when buyer can tell what is needed then what to do. Seller write SOW. Bad for buyer |
|
Cost Plus Fixed Fee (CPFF) |
Used for research and development contracts (which generally have low level of detail in the scope); fixed fee can change if there is a change to the contract (usually through change orders). The risk rests with the buyer. This is the most common cost reimbursable contract. |
|
Cost Plus Incentive Fee CPIF) |
Buyer and seller share in savings based on predetermined %s; long performance periods and substantial development and test requirements (incentive to the seller to perform on or ahead of time) Cost plus agreed fee plus a bonus for beating the objective |
|
Cost plus Award fee |
Similar to CPIF but award amount is amount is determined in advance and apportioned out depending on performance. |
|
|
|
|
T & M |
Used for small amount contract. Good if the buyer wants to be in full control and/or the scope is unclear/not detailed or work has to start quickly. Profit factor into the hourly rate. Fixed rate but variable total cost. They are open ended. |
|
Fixed price or Firm Fixed Price (FFP) |
Buyer defines reasonably detailed specifications (e.g. SOW). Shift risk to seller. Good when deliverable is not a core competency. Fixed Price (FP) is the most common type of contract in the world. Seller is at risk. |
|
Fixed Price Plus Incentive Fee (FPIF) |
Incentives for fixed price contract. The inventive is same as CPIF. High-value projects involving long performance periods |
|
Fixed Price Award Fee |
“bonus” to the seller based on performance (e.g. 100K + 10K for every designated incremental quality level reached. Award fee is decided in advance. |
|
Fixed Price Economic Price Adjustment (FPEPA) |
Allow Price increase if the contract is for multiple years |
|
Purchase Order |
A form of contract that is normally unilateral and used for simple commodity purchases. It is simplest type of fixed price contract and is usually unilateral(Signed by one party instead of bilateral) |
|
Contract type Vs Risk |
FP – FPIF – FPAF – FPEPA – T&M – CPIF – CPAF – CPFF – CPPC
Fixed Price – T&M – Cost Reimbursable Buyer’s risk from low to high Seller’s risk from high to low |
Related posts:
Discussion
Comments are closed.