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Unformatted text preview: ack flexibility to change design or modify contract
– Hard to change original plan (change order, potential litigation)
– Adversary contractual relationships 22 Fixed Unit Price Contract
• Payments are based on precise measurement of field quantities. • Pros:
– Allow some flexibility for variations in the amount of work.
– Reduce the number of change orders.
– Owner does not have a precise final price.
23 Cost Plus Contract
• Final Contract Payment = Cost + Fee
• Contractor is reimbursed regularly for expenses incurred
• Fee: profit or markup in addition to cost reimbursement
• Four types of cost plus fee structure
– Cost + percent of cost
– Cost + fixed fee
– Cost + fixed fee + profit-sharing
– Cost + sliding fee
Fee = R(2T-A)
T = target cost; R = base percent value; A = actual cost 24 Example: Consider a cost-plus-fee contract with contract amount
(i.e. cost + fee) of $20,370,000 that owner has budgeted. The
actual cost turns out to be $19,500,000.
Structure Details Percent of
fee Fee = 5% of cost Fixed fee Final
Impact Owner Impact Fee = $970,000 Fixed fee + Fee = $970,000
Sliding fee Target cost =
R = 5%
25 Cost Plus Contract
Fee = percentage of cost Fee = sliding fee Fee = fixed fee Fee = fixed fee + profit sharing 26 Guaranteed Maximum Price Contract
• Contractor is reimbursed for actual costs of materials, labor,
equipment, subcontracts, overhead, and profit up to a maximum
fixed price amount.
Amount Actual Cost
Plus Fee Contractor Impact Owner Impact $20,000,000 $20,290,000 Suffers a $290,000
loss No impact, with unchanged
contract amount $20,000,000 $19,900,000 Percent: Earns less
Fixed: No impact
Sharing: Earns more 27 Shared-savings-GMP versus Lump sum
Shared-savings-GMP Lump sum 28 Overview 29...
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- Fall '14