2-2 Final Project Milestone One: Analysis Overview and Contract Selection

Activity Assignment

Contract Types

1. Fixed Price Contracts

Fixed Price Contracts are those contracts that provide an adjustable and appropriate price which may include a target price, a ceiling price, or both of these prices(Campillo, Dahlquist, Wallin, & Vassileva, 2016). It is a contract in which the amount of the payment is not dependent upon the resources to be used or the expended time. This contract helps the small businesses for managing the hiring cost outside the organization. It is because the contractor and the business determine the total value of the agreement or project before signing it. Fixed-price contracts are most suitable if the commercial items are to be acquired.

2. Cost Reimbursement Contract

A type of contract in which the contractor is provided with all of its allowed expense so that he could set the limit and he is also paid with additional payment which is considered as his profit is know as a cost-reimbursement contract (Kim, Roberts, & Brown, 2016) This type of contract is considered high risk for the government of a country. The use of this contract is prohibited by FAR for acquiring commercial items. The contractor makes a great effort for meeting the needs of the government within the estimated cost. This contract is most suitable when it is difficult to estimate the cost of the work to be done with accuracy and reliability. In other words, a cost-reimbursement contract takes place when a fixed-price contract cannot take place.

3. Incentive Contract

An incentive contract is a type of contract which is considered as a sub-segment of a cost-reimbursement contract. It takes place when there are specific commitments of time or cost that are required for the specified project (Kerkhove & Vanhoucke, 2016) It allows the companies or individuals to complete the specified project within a given period and the specific cost. If the specified project is completed by the contractor before the deadline, he is paid with an incentive for his accomplishment. An incentive contract aims to establish attainable and reasonable targets that have been accurately described to the contractor. It helps in creating more ownership over the project that is being completed. In this case, the contractor gets more control over the final result of the project and gets the right to decide the incentive for that project.

4. Indefinite Delivery Contract

The indefinite-delivery contract is considered as a vehicle that is awarded to the vendors for facilitating the delivery of service or supply orders. Specific procedures and policies are defined for this purpose. This contract is related to the delivery of supplies that do not specify a particular organization or quantity of supplies. The indefinite-delivery contract helps in maintaining government stocks at minimum levels. It also helps in providing direct shipment to the customers. It also provides an appropriate arrangement of cost and pricing which helps in providing an estimated quantity of specific services or supplies.

5. Time and Material Contract

Time and material contract is a type of contract which is made specifically for construction purpose. It is simpler than other types of contracts where both parties agree upon the unit rate for materials and labor. It may also be made for the development of a specific product or any other type of work where the employer is ready to pay the contractor based on time spent by the employees of the contractor and the materials used by them in the construction or development of that specific product. The requirements of the project are not accurate as there are chances that changes could be made to them.

Selection Factors

Following are some key factors that are considered when selecting the type of contract for a procurement:

1. Cost Analysis

2. Price Analysis

3. Complexity and Type of the Requirement

4. The Urgency of the Requirement

References Campillo, J., Dahlquist, E., Wallin, F., & Vassileva, I. (2016). Is real-time electricity pricing suitable for residential users without demand-side management? Energy, 109, , 310-325. Kerkhove, L. P., & Vanhoucke, M. (2016). Incentive contract design for projects: The owner׳ s perspective. . Omega, 62,, 93-114. Kim, Y. W., Roberts, A., & Brown, T. (2016). Impact of Product Characteristics and Market Conditions on Contract Type: Use of fixed-price versus cost-reimbursement contracts in the US Department of Defense. Public Performance & Management Review, 39(4), 783-813.