Contract Statement of Work

What are the specifications of a Contract Statement of Work :

• are detailed descriptions that define the requirements of a service or a product.
• can be in the form of words, pictures or diagrams.

What is Procurement Management Plan in PMP?

Procurement Management Plan:

• may be formal or informal
• should specify the types of contracts
• should obtain and evaluate bids
• should manage multiple providers
• should state procurement activities

Disadvantages of Fixed Price Contract

Disadvantages of Fixed Price Contract include:

• Seller may under-price the work and try to make up profits on change orders
• Seller may not complete some of the contract statement of work if they begin losing money
• More work for buyer to write the contract statement of work
• Can be more expensive than Cost Reimbursable Contract if the contract statement of work is incomplete
• Seller will need to add to the price for their increase of risk

Advantages of Fixed Price Contract

Advantages of Fixed Price Contract includes:

• Less work for buyer to manage
• Seller has a strong incentive to control costs
• Companies have experience with tis type of contract
• Buyer knows the total price at project starts

Disadvantages of Time & Material Contract

Disadvantages of Time & Material Contract include:

• Profit is in every billed
• Seller has no incentive to control costs
• Appropriate only for small projects
• Requires the most day to day oversight from the buyer

Advantages of Time & Material Contract

Advantages of Time & Material Contract include:

• Quick to create
• Contract duration is brief
• Good choice when you are hiring "bodies" or people to augment your staff

Disadvantages of Cost Reimbursable Contract

Disadvantages of Cost Reimbursable Contract include:

• Require auditing seller's invoices
• Require more work for the buyer to manage
• Seller has only a moderate incentive to control costs
• Total price is unknown

Advantages on Cost Reimbursable Contract

The Advantages on Cost Reimbursable Contract are:

• Simpler contract statement of work
• usually requires less work to work the scope that fixed price
• Generally lower cost than fixed price because the seller does not have add as much for risk.

Point of Total Assumption (PTA in FPI

What is Point of Total Assumption in FPI?

• Point of Total Assumption is the point at which the share ratio ceases to operate and $1 of added cost result in $1 decrease in payment to the contractor.

What are the three types of FPI?

The three types of FPI include:

• Firm Target
• Successive Target
• Fixed Price and Award Fee

What are the elements of FPI Contracts?

The elements of FPI contracts include:

• Target Cost
• Fee / Profit
• Price
• Ceiling Price
• Government / Contractor Share Ratio

Fixed Price Incentive Contracts

What is a Fixed Price Incentive Contract:

• Contract such that all allowable cost is paid and final price is based on total final cost relative to total target cost.
• Final price subject to a ceiling price which is negotiated at the outset.

What is an Incentive Contract?

An Incentive Contract is such that the fee is structured on the basis of the contractor meeting targets int he performance of the contract.

Incentive Contracts:

• motivate contractor efforts that might not otherwise be emphasized
• discourage contractor inefficiency and waste
  
  

Incentive Contracts incentivize efficiency.

Incentive Contracts: Point of Total Assumption

That is a component of US FAR 16.4 related to Fixed-Price Incentive Fee Contracts.

• It covers a variety of incentive contracts, presented here only to provide perspective.
• Notes: US Federal Acquisition Regulation (FAR) 16.4

What is Fixed Price?

What is Fixed Price?

• It is also called Lump Sum, Firm Fixed Price
• Is one price that is agreed upon for all the work.
• Has least cost risk for buyer if he has a completely defined scope.
• Is most appropriate when the buyer can completely describe the contract statement of work

What is Time and Material (T&M)

Time and Material is:

• also called Unit Price
• used for small dollar amounts
• price on per hour or per item basis