W2_FELIX_Contract Type

W2_FELIX_Contract Type

1.   Problem Recognition, Definition and Evaluation

I just receive an order to manage and complete a new project i.e. Bidding Assistance and Burner Tip Procurement services for NPU H2rich Gas recovery.

The Project scope of work is as follow:

a.     EPC Bidding Assistance

Technical & Commercial Bid Clarifications and Evaluation and summary of EPC Bids up to Recommendation to EPC award.

b.      Burner Tip Procurement (Pre and Post Order Services)

Material Requisition Preparation, Vendor RFG, TBE and CBE up to Purchase Order with Vendor

I have already develop TOR (Term of reference) and ready to hire a consulting agency to assist and complete the project.

The next step is to make bidding strategy and also the type of contract should be used for this project.

   

2.   Alternatives of the contract type

Based from Engineering tool box (www.engineeringtoolbox.com) there are 5 (five) common types of contracts which is used in the engineering and construction industry i.e:

a.    Lump Sum Contract

b.    Unit Price Contract

c.    Cost Plus Contract

d.    Incentive Contracts

e.    Percentage of Construction Fee Contracts

3.   The outcomes for each contract type

a.     Lump Sum Contract

With this kind of contract the contractor agrees to do the described and specified project for a fixed price. Also named "Fixed Fee Contract".

This contract type may define various milestones for the deliveries as well as KPIs (Key Performance Indicators). In addition, the contractor may have an acceptance criteria defined for the milestones and the final delivery.

The main advantages of this type of contract is that the contractor knows the total project cost before the project commences.

A Fixed Fee or Lump Sum Contract is suitable if the scope and schedule of the project are sufficiently defined to allow the consulting engineer to estimate project costs.

b.    Unit Price Contract

This kind of contract is based on estimated quantities of items included in the project and their unit prices. The final price of the project is dependent on the quantities needed to carry out the work.

Usually the owner (contractor/client) of the project decides on the estimates and asks the bidders to bid of each element of the project.

c.     Cost Plus Contract

A contract agreement wherein the purchaser agrees to pay the cost of all labor and materials plus an amount for contractor overhead and profit.

In this contract model, the services provider is reimbursed for their machinery, labor, and other costs, in addition to contractor paying an agreed fee to the services provider. In this method, the services provider should offer a detailed schedule and the resource allocation for the project. Apart from that, all the costs should be properly listed and should be reported to the contractor periodically.

d.    Incentive Contracts

Compensation is based on the engineering and/or contracting performance according an agreed target - budget, schedule and/or quality.

The two basic categories of incentive contracts are

·          Fixed Price Incentive Contracts

·          Cost Reimbursement Incentive Contracts

Fixed Price Incentive Contracts are preferred when contract costs and performance requirements are reasonably certain.

Cost Reimbursement Contract provides the initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs..

e.     Percentage of Construction Fee Contracts

Compensation is based on a percentage of the construction costs. Based on the resources and material required, the cost for the construction is estimated.Then, the client contracts a service provider and pays a percentage of the cost of the project as the fee for the services provider.

4.   Selection of criteria.

In order to determine what kind of contract should be used there are some criteria must be considered:

-       Price competition.

-       Price analysis.

-       Cost analysis

-       Type and complexity of the requirement.

-       Urgency of the requirement.

-       Period of performance or length of production run.

-       Contractor's technical capability and financial responsibility.

The detail criteria will be discussed on next blog.

5.   Analysis for the alternatives

By understanding the scope and definition of the work we can analyze that :

-       The project require a consultant agent with have specialty for the technology (refinery system).

-       The project have risk of uncertainty volume, and uncertainty duration.

-       The unit rate will be fix and agreed with the consultant.

-       Total price depends on the actual number of hours that have been spent multiplied by the agreed unit rate.

6.   Select the preferred alternative

Base from the above analysis I make sort out the contract become only two types i.e

a.     Cost Plus contract

b.     Cost Reimbursement Incentive Contracts

In this case I choose Cost plus contract with the consideration that our regulation not yet equipped with the incentive contracts.

7.   Performance Monitoring & Post Evaluation of Result

The performance monitoring and post evaluation of this contract will be report at actual data on 3 month period after.

Reference:

i.              Factors in Selecting Contract Types                                                         

http://nawctsd.navair.navy.mil/Resources/Library/Acqguide/selecting-contract-types.htm

ii.             The Engineering Tool Box:

http://www.engineeringtoolbox.com/contract-types-d_925.html

iii.            Project Contract Types

http://www.tutorialspoint.com/management_concepts/project_contract_types.htm           

iv.            Project Management Knowledge

http://project-management-knowledge.com/definitions/c/cost-reimbursable-contract/