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Session 4
Contract Management
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Session 4 Objectives
1. Explain the differences between fixed-price and
cost-plus contracts.
2. Develop contract terms to protect against
environmental uncertainty.
3. Outline a process for contract performance review
and compliance.
4. Compare alternative approaches at the point of
contract renewal and apply best practices in a
contract renewal situation at their organizations.
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Types of Contracts
Fixed-price
Cost-plus
Shared-savings
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Fixed-price
Fixed-price. A type of contract that generally provides for
a firm price (lump sum). It obliges the supplier to deliver a
defined product and/or service to the customer at a
predetermined price.
Risk, especially the risk of rising input (labour and/or
material) costs, is shifted from the buyer to the supplier.
Can be written to allow for adjustable pricing under
changing circumstances, e.g., with incentive, escalation
or or redetermination clauses.
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Escalation
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Price Adjustment
If any Unplanned Maintenance has a material effect on
the Work to be performed in connection with Planned
Maintenance Workscope, the Parties shall enter into good
faith negotiations in order to negotiate a pricing
adjustment to reflect the change in Planned Maintenance
Workscope.
If the Parties are unable to agree upon the adjustment,
then the dispute will be determined by arbitration in
accordance with Section XX Arbitration.
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Fixed-price variants
Fixed-price incentive. A fixed-price type of contract with
provision for adjustment of price based on supplier
performance, e.g., on-time or early delivery or superior
product or service quality.
Fixed-price with redetermination. A contract with an initial
negotiated fixed price and an agreement to adjust the price
under certain circumstances, e.g., a rise in input costs
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Cost-plus
Cost-plus. A contract in which payment to the supplier
covers total cost of completing the job (labour, material,
overhead) plus a negotiated percentage profit margin.
The risk shifts from supplier to buyer. In fact, technically,
the higher the total cost incurred, the greater the profit.
Cost-plus fixed-fee. A cost-type contract wherein the
supplier receives reimbursement for all relevant incurred
costs, plus a fixed fee for services rendered.
While the fixed fee does not vary with actual costs, it
may be adjusted due to subsequent changes in the
scope of work or services performed under the contract.
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Shared-savings
Shared-savings. A type of contract under which a
supplier installs an item (equipment, machine, or
system) at a customers premises free of charge,
but shares the subsequent savings realized as
compared with the period before the item was
installed. Title to the item is usually kept by the
supplier until its price is fully recovered from the
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Contract Types
Discussion Question # 1
What type of contract: fixed-price or cost-based,
is most commonly written at your organization?
What are the pros and cons of writing this type of
contract?
Dr. Trevor Brown
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Contractual
between organizations
Saxena, Anuj (2005), Enterprise Contract Management:
The Vanguard of Sustained Compliance, ECM Solutions,
Alti, Inc. Available at: http://www.iaccm.com.
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Group Work
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Group Work
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Session 5
Candidate Presentations
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Group Work
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Session 6
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Final Report
Your Organizations Request for Proposal
(RFP) Policy
2 options:
1) The final report is a statement of your
organizations RFP policy (creating, issuing
and maintaining RFPs). You should critique
the policy and suggest improvements
OR
2) If your organization does not have a policy,
briefly describe and RFP policy they should
adopt.
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Final Report
Marking will be as per the following guidelines:
Option 1
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Final Report
Marking will be as per the following guidelines:
Option 2
Executive Summary 15%
State reasons why an RFP Policy should be adopted
15%
Describe RPP Policy 30%
Plan of Action to implement RFP policy 30%
Overall Professionalism 10%
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15%
15%
Analyze Policy
OR
Describe RFP Policy
30%
Plan of Action
30%
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Final Report
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