Contract Types

Question 1

What is bought (service or product) in each contract type?

Answer 1

1) C&R = Service
2) T&M = Service
3) Fixed Price = Product

Question 2

How is cost stated to the buyer in the contract?

Answer 2

1) C&R = Costs are variable, fee is fixed
2) T&M = Hourly rate or price per unit
3) Fixed Price = As a set of current amount (e.g $1MM)

Question 3

How is profit stated in the contract?

Answer 3

1) C&R = listed separately, known to the buyer (via fixed fee or invoice audit)
2) T&M = included in the hourly rate; maybe unknown to the buyer
3) Fixed Price = included in the price, unknown to the buyer

Question 4

What is cost risk to the buyer (H, M, L, none)

Answer 4

1) C&R = high, costs are reimbursed by the buyer
2) T&M = medium, costs are not fixed but they are known per unit; contract used for small amount and limited time
3) Fixed Price = low, increase in cost is born by seller

Question 5

How important is detailed procurement SOW (H,M,L, none)

Answer 5

1) C&R = Low; work is largely unknown and buyer pays all costs
2) T&M = Low; little scope and may only describe skill sets required
3) Fixed Price = High; SOW must be complete so seller can come up with accurate price to do the work

Question 6

What industry uses contract type?

Answer 6

1) C&R = IT, R&D, knowledge work - work never been done before
2) T&M = Hiring people for service on an hourly rate (e.g Legal, plumbing)
3) Fixed Price = = Construction; where designs are given

Question 7

How much negotiation is required to sign the contract after receipt of seller’s price? (H, M, L, none)

Answer 7

1) C&R = High, estimated costs are looked to calculate fee to be paid
2) T&M = Low or none
3) Fixed Price = None

Question 8

What level or effort and expertise the buyer needs to manage seller (H, M, L, none)

Answer 8

1) C&R = High; seller is considered as a expert and costs are very unknown
2) T&M = Medium; there is tendency for seller to lengthen the work
3) Fixed Price = Low; work is well defined and cost risk is with seller

Question 9

How are costs billed to the buyer

Answer 9

1) C&R = actual cost incurred, profit at project completion
2) T&M = hourly or per unit rate (cost + profit)
3) Fixed Price = fixed price according to payment schedule

Question 10

How much auditing of seller’s cost is needed?

Answer 10

1) C&R = High
2) T&M = None; work hours completed might be audited but will take effort
3) Fixed Price = Low; cost is fixed so effort is looking at work completion instead of cost incurred

Question 11

RFP - contract type (FP, TM, CR) and procurement SOW type (performance, functional, design)

Answer 11

1) Contract type = CR

2) Procurement SOW type = performance, functional

Question 12

IFB (invitation for bid) - contract and SOW type

Answer 12

1) Contract type = FP

2) Procurement SOW type = design

Question 13

RFQ (request for quotation) - contract and SOW type

Answer 13

1) Contract type = TM

2) Procurement SOW type = any