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OST LUS Ontract

The cost-plus contract specifies that the buyer pays all project costs incurred by the contractor plus an additional amount for overhead and profit. This amount is usually a percentage of labor and material costs. There are various types of cost-plus contracts that differ in how overhead and profit are determined. Incentive contracts pay engineers based on performance metrics like budget, quality and schedule. There are fixed-price incentive contracts where payments are certain, and cost-reimbursement incentive contracts where payments are adjusted based on total costs. Both provide targets and formulas to determine final fees. Advantages of these contracts include incentivizing quality work and innovation, while disadvantages include added costs and dispute potential.

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Jet Javier
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17 views

OST LUS Ontract

The cost-plus contract specifies that the buyer pays all project costs incurred by the contractor plus an additional amount for overhead and profit. This amount is usually a percentage of labor and material costs. There are various types of cost-plus contracts that differ in how overhead and profit are determined. Incentive contracts pay engineers based on performance metrics like budget, quality and schedule. There are fixed-price incentive contracts where payments are certain, and cost-reimbursement incentive contracts where payments are adjusted based on total costs. Both provide targets and formulas to determine final fees. Advantages of these contracts include incentivizing quality work and innovation, while disadvantages include added costs and dispute potential.

Uploaded by

Jet Javier
Copyright
© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
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COST-PLUS

CONTRACT
The cost-plus contract is used when the purchaser of an engineering
project agrees to pay for the labor, materials and an additional amount
for the contractor overhead for some profit. This is usually a percentage
of the labor and material costs, but can vary for each project. There are
various types of cost-plus contracts, where the cost of the project
remains a constant variable. Along with the cost of the project, contracts
often include a fixed-percentage section, a fixed fee, a fixed fee with an
added bonus, or a fixed fee with a mutual agreement of sharing any cost
savings. These various contracts are often used when the scope of the
project is indeterminate in terms of time span or budget.
TYPES OF COST PLUS CONTRACT

 Cost Plus Fixed-Percentage


 Cost Plus Fixed Fee Contracts

 Cost Plus Fixed Fee Contracts with a mutual agreement of


sharing any cost savings
COST PLUS FIXED-PERCENTAGE

is a method contractors often use to price services.


This type of contract specifies that the buyer must
pay all the project costs incurred by the seller, plus an
additional amount for profit.
COST PLUS FIXED FEE CONTRACTS

a specific contract type that offers a set incentive for


the contractor upon the job completion. It is
important to note that the incentive fee is fixed and
cannot be changed under normal circumstances.
COST PLUS FIXED FEE CONTRACTS WITH A MUTUAL
AGREEMENT OF SHARING ANY COST SAVINGS

a form of agreement with a contractor in which it is agreed


that the contract sum will not exceed a specified maximum.
ADVANTAGE AND DISADVANTAGE OF
COST PLUS CONTRACTS

Advantage of Cost Plus Contracts


-To a contractor, using a cost plus contract benefits
jobs that use a lot of materials. You wouldn't use it
if your material costs were minimal.
Disadvantage of Cost Plus Contract
-when you run into a difficulty and you need to
spend more time to work around it. Your materials
costs remain the same, so that extra time won't be
covered with this type of contract.
INCENTIVE
CONTRACT
Incentive contracts are like compensation contracts, where engineers are
paid based on performance, budget, quality and schedule for a specific
project. There are two types of incentive contracts: a fixed-price incentive
contract, which is used when costs and performance requirements are
certain to be met, and the cost-reimbursement incentive contract, which
allows the payments to be adjusted based on the total cost and the target
costs. This type of contract often includes a target cost, a target fee and a
list of minimum and maximum fees, along with an adjustment formula.
Once the project has been completed, the engineers are paid in
accordance with the formula.
TYPES OF INCENTIVE CONTRACT

Fixed Price Incentive


Cost Reimbursement Incentive
FIXED PRICE INCENTIVE
a fixed-price contract that provides for adjusting
profit and establishing the final contract price by
application of a formula based on the relationship of
total final negotiated cost to total target cost. The
final price is subject to a price ceiling, negotiated at
the outset. The two forms of fixed-price incentive
contracts, firm target and successive targets are
further described below.
COST REIMBURSEMENT INCENTIVE

that provides for an initially negotiated fee to be


adjusted later by a formula based on the relationship
of total allowable costs to total target costs
ADVANTAGE AND DISADVANTAGE OF
INCENTIVE CONTRACTS

Advantages
 It creates more ownership over the
work being completed
 It incentivizes innovation

 It promotes better lines of


communication during the project.
 It encourages skill-based personnel
assignments
 It promotes higher levels of personal
discipline.
 It allows for positive or negative
incentives to be included
Disadvantages
 It creates additional administrative costs
for ownership
 It requires extra negotiation time

 It can change the priority of the


contract.
 It increases the risk that a dispute will
occur
 It can be difficult to determine what a
fair incentive target happens to be.
 It does not provide a one-size-fits-all
solution.
 It may not always be needed
Thank You !!!
Cuer, Diomedes G.
BSCE 5A

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