(b) The contract may provide for a maximum price based on an assessment of the uncertainties associated with the service and its possible impact on costs. That maximum price should allow the contractor to assume a reasonable proportion of the risk and, once fixed, may be adjusted only by applying contractual clauses which provide for an appropriate adjustment or other modification of the contract price in certain circumstances. (A) an analysis of the reasons why the use of a contract other than a fixed-price contract (e.B reimbursement, time and equipment, hours of work) is appropriate; See 16.301 for requirements that apply to all reimbursement contracts to be used in conjunction with the following subsections. What is an example of a fixed-price contract? A simplified version of a fixed-price contract could look like this: (3) If the negotiated unit price reflects a net price after applying a trade discount from a catalogue or list price, the contract agent must document both the catalogue or list price and the discount in the contract file. (This does not apply to prompt payment or discount.) (1) A fixed-fee plus contract may be used if the conditions of 16-301-2 are met and if e.B 16,405-1 cost-plus incentive contracts. (a) Description. The cost plus incentive fee contract is a cost reimbursement contract that provides that the fees originally negotiated are then adjusted according to a formula based on the ratio of total eligible costs to total target cost. This type of contract specifies the target cost, target fees, minimum and maximum fees, and a fee adjustment formula. After the performance of the contract, the fee to be paid to the contractor is determined according to the formula. The formula provides, within certain limits, for fee increases beyond the target charge if the total eligible costs are below the target cost, and for fee reductions below the target fee if the total eligible costs exceed the target costs. This increase or decrease is intended to encourage the contractor to effectively manage the contract. If the total eligible costs are above or below the cost range within which the fee adjustment formula operates, the Contractor shall receive the total eligible costs plus the minimum or maximum fee.
(b) enforcement. (1) A cost plus incentive fee contract is appropriate for development and testing services or programs if: (i) a reimbursement contract is required (see 16.301-2); and (ii) target costs and a fee adjustment formula can be negotiated, which may motivate the contractor to manage effectively. 2. The contract may contain technical incentives for performance where it is very likely that the necessary development of a larger system is feasible and the government has set its performance targets at least in general. This approach may also apply to other acquisitions if the use of cost and technical performance incentives is desirable and administratively feasible. (3) The fee adjustment formula should provide an effective incentive across the full range of reasonably foreseeable deviations from the target costs. If high maximum fees are negotiated, the contract also provides for a low minimum fee, which can be zero fees or, in rare cases, negative fees. (c) Restrictions. No cost plus incentive fee contracts will be awarded unless all restrictions of 16-301-3 are met. 16.405-2 Additional fee contracts. A cost plus award contract is a cost reimbursement contract that provides for a fee consisting of (1) a base amount determined at the beginning of the contract, if any and at the customer`s discretion, and (2) an additional amount that the contractor can earn in whole or in part during performance and that is sufficient to create a motivation for excellence in cost areas. Schedule and technical performance.
See paragraph 16.401(e) for requirements for the use of this type of contract. Contracts with subsequent redefinition allow price adjustments after the conclusion of the contract. They are usually used for research and development contracts where it is difficult to set a fair price in advance. As noted in the university statement above, fixed-price premiums are expected to result in expenses very close to the revenues generated, and fees for fixed-price accounts should, without exception, reflect all actual efforts and associated costs. Given these expectations, the university must be able to track budgets and related expenses after each outcome, milestone or task. This level of monitoring allows the university to analyze budgets and expenses related to specific results when large residual balances occur. The University offers the following follow-up options: (c) Each contract letter must include a negotiated definition schedule as required by clause 52.216-25, Contract Definition, which includes (1) data for the submission of the contractor`s price proposal, required cost or certified price data, and data other than certified cost or price data; and, if necessary, manufacturing or purchasing and subcontracting plans, (2) a date for the start of negotiations and (3) a target date for the definition, which is the earliest possible date for the definition. The schedule provides for the determination of the contract within 180 days of the date of the contract letter or before the completion of 40% of the work to be performed, whichever comes first. However, the contract staff may, in extreme cases and in accordance with the Agency`s procedures, authorise an additional period. If, after exhausting all reasonable efforts, the Contractor and the Contractor are unable to negotiate a final contract because no agreement on price or fees could be reached, the clause under subsections 52.216-25 requires the Contractor to proceed with the Work and provides that the Contractor, with the consent of the head of the contracting activity, determine a reasonable price or cost in accordance with paragraphs 15.4 and 31, subject to appeal in accordance with the dispute resolution clause.
Cost-plus contracts, sometimes referred to as reimbursement contracts, differ from fixed-price contracts in several ways. Under a cost-plus contract, the buyer reimburses the seller for the costs actually incurred plus an additional amount for project management and profit – this is the “plus” in “cost plus”. Note that the agreement does not describe the steps JDK Creative takes to develop the logo. Because no matter how many steps are needed, the price stays at US$2,000. (3) Price orders. Where the price of the supply or service has not been fixed in the procurement, the procuring entity shall fix the prices of each procurement in accordance with the principles and methods set out in paragraph 15.4. The Canadian Construction Documents Committee`s Agreed Price Contract (CCDC-2), revised in February 2008, requires a landowner and prime contractor to agree that the work will be performed at a fixed price or lump sum. [8] Once the price and terms of the contract have been agreed, the responsibility for meeting the needs of the project rests exclusively with the seller. As the fixed price indicates, the buyer pays the agreed fixed price once all the conditions of the contract are met. Fixed-price contracts are generally best suited for simple projects where the cost is known in advance. An example would be the delivery of 100 joints in two weeks. 3.
There is reasonable assurance that reliable additional information will be available at an early stage in the performance of the contract, allowing either (i) a fixed fixed price or (ii) a fixed target and formula for determining the final profit and the price to be negotiated which constitute a fair and proportionate incentive. This additional information is not limited to the experience of the contract itself, but may come from other contracts dealing with the same or similar elements. (a) Description. A fixed-price incentive contract (fixed target) sets the target cost, the target profit, a price cap (but not a profit cap or cap) and a profit adjustment formula. These elements are all negotiated from the beginning. The price cap is the maximum amount that can be paid to the contractor, with the exception of any adjustment under other contractual clauses. When the contractor has completed the service, the parties negotiate the final cost and the final price is determined using the formula. If the final cost is less than the target cost, the application of the formula gives a final gain greater than the target gain; Conversely, if the final cost is higher than the target cost, the application of the formula results in a final gain below the target profit, or even a net loss. If the final negotiated costs exceed the price ceiling, the contractor absorbs the difference as a loss. Since profit varies inversely with costs, this type of contract provides a positive and calculable incentive for profit for the entrepreneur to control costs. The costs included in a cost-plus contract typically include the work and materials used directly in the project, as well as indirect costs such as insurance. If the project requires more material or work than expected, the price increases accordingly.
Cost-plus contracts offer sellers a certain guarantee of profit, even if the scope of the project is not known at the beginning. Fixed-price contracts are among the simplest of all forms of construction contracts. They allow entrepreneurs freedom and flexibility and offer a little peace of mind to homeowners. .