W3_FELIX_Contract Type II

W3_FELIX_Contract Type II

1.   Problem Recognition, Definition and Evaluation

The case study is same with the previous blog topic at W2, i.e. what type of contract should be used for my new project services.

But in this blog I will expand for the decision making category.

   

2.   Alternatives of the contract type

As I described before based from Engineering tool box 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 Fee Contract

d.    Incentive Contracts and

3.   The outcomes for each contract type

a.     The possibility outcomes if owner used Lump Sum Contract i.e.

Advantage:

Minimum Risk for the owner.

Time involved for preparing the plans and specifications is considerably longer

Contract is based on agreed rates

Minimum Owner supervision related to quality and schedule.

Disadvantage :

Time involved for preparing the plans and specifications is considerably longer.

Because price determines who is awarded the contract, the quality of work will be poor.

Difficult to make changes          

b.    The possibility outcomes if owner used Unit Price Contract i.e.

Advantage:

Owner pays for only measured work

Scope and quantities easily adjustable

Disadvantage:

Negotiation of 'unit' rates can be very time consuming

Final cost not known at outset since bills of quantities at bit time are only estimates

Additional site staff needed to measure, control, and report on units completed

c.     The possibility outcomes if owner used Cost Plus Fee Contract i.e.

Advantage:

Set a contract early with little negotiation.

Selection of supplier is based on rates.

Work definition is unimportant to contract.

Field work may be started before the plans and specifications are complete

Disadvantage:

Owner assumes all of the risk.

The contractor is encouraged to use inefficient (time wasting) labor and expensive materials.

Owner has to manage all coordination issues.

Owner carries cost of poor quality.

the contractor cannot afford delays that will keep the job going longer than expected.

d.    The possibility outcomes if owner used Incentive Contracts i.e.

Advantage:

Used to Encourage More Effective Work From Contractors.

When Appropriately Applied, Contractors are Paid Based on Their Handling of Cost, Schedule, and Their Performance

Good Business Practice

Owner & Contractor share financial risk and have mutual incentive for possible saving

Disadvantage:

Opportunities are Given to Contractors to Receive Unearned Fees

Require complete auditing by owner’ staff

4.   Selection of criteria.

selecting the contract type

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

-       Flexibility for additional or reduction of scope

-       Quality of the services

-       Detail spec, volume and scope of work requirement

-       Owner financial risk

-       Owner supervision

-       Price negotiation

 

5.   Analysis for the alternatives

By using Nondimensional scaling from Chapter 14. Decision Making Considering Multiattributes; Engineering Economy Book :

 

6.   Select the preferred alternative

Base from above calculation Incentive Contracts become best choice for the project service contract.

 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.            Engineering Economy

              William G. Sullivan, Engineering Economy, Fifteenth Edition, 2012