ch1_intro_1

Pros allow some flexibility for variations in the

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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. • Cons: – 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. Fee Structure Details Percent of fee Fee = 5% of cost Fixed fee Final Contract Amount Contractor Impact Owner Impact Fee = $970,000 Fixed fee + Fee = $970,000 profit Sharing = sharing (owner:contract = 6:4) Sliding fee Target cost = $19,400,000 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. GMP Contract 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 Saves $100,000 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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