Contract Types and Close Project

Submitted by pmptesttaker on Thu, 03/04/2010 - 14:24

I'm having problems with close project, closer procrement, etc. I had a lot of questions on this but I got totally confused. Can somebody tell me a little more about this? I'm not getting it ;-)

 

Also, the contract types. Does anybody have a simple way of quicly identify which contract bares the most risk for buyer/seller, etc?

 

Thanks!

 

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pkukilla

Thu, 03/04/2010 - 14:27

Contract type Vs Risk 

FP - FPIF - FPAF - FPEPA - T&M - CPIF - CPAF - CPFF - CPPC

Buyer's risk from low to high
Seller's risk from high to low

cplusplus

Thu, 03/04/2010 - 16:31

Also look for Point of Total Assumption formulas for both types:

FPIF & Cost plus.

Ceiling price: cc

fixed fee: ff

target price: tp

target cost: tc

 

FPIF(fixed price incentive fee):

pta = (cp - tp / buyerseller ratio) + tc

---------------------------------------------------------

Cost plus fixed fee type: 

pta = [{(cp - (tc+ff)/ratio) +tc}]

 

Thanks,

Raj

pmptesttaker

Thu, 03/04/2010 - 17:00

Thank you both...I hosnetly don't know how I'm going to remember all of this information ;-)

 

-Lauri

ChandraR

Thu, 03/04/2010 - 19:42

You don't have to remember.  Just put yourself in the shoes of a buyer or seller. 

Imagine you want to buy the services from a seller, say, for a landscape or building a  deck in your house.  As a buyer: what is the least risk for you?  A Fixed contract!  You will not pay a penny more even if the prices of materials or labor costs etc increase.  The seller has the highest risk as he/she has to abosrb these additional risks due to uncertainties.  Now you want the work to be done a bit quicker so you can go to vacation.  You will provide some incentive for the seller to accommodate your request, assign higher priority and some more resources if needed etc.  So your costs add up with Fixed Price+ Incentive Fee contract.  Normally u say some%, as an added incentive.  It costs you more.  You want to further accelerate the work.  You negotiate: If the seller completes the work 1 day ahead of committed date, you award, say: $50 on top of the Fixed price; if completed 3 days ahead, you award: $150 on top of the fixed price, if completed 7 days ahead, you award: $250 on top of the fixed price.  This is called Fixed Price Award Fee contract. This costs you higher (more riskier for you - the buyer) than FF, higher than FPIF.  Extends this thinking further.  If you agree for Time & materials you are in more soup as you face lot of uncertainties how much the material cost and how many man days it takes.  You have to pay for all things including slow work by the labor etc.  This is Time & Materials Contract.  Now if you get into Cost Plus contracts your risk keeps increasing.  You have to pay all the costs(material, labor, rental equipment)+ Contractor profit etc.  Your financial pain is Seller's gain.  Your risk is inversely proportional to seller's and vice versa.  Now you start arranging these contracts in a chronological order from your ( buyer's) point of view.  Reverse the order to get the same from seller's point of view.  So if you understand what each one means, you don't have to worry about remembering.  Hope this helps!

 

Chandra

pmptesttaker

Thu, 03/04/2010 - 19:54

Yes...that makes a lot of sense. Thanks for breaking it down for me. That's a good way to remember/learn it.

 

Thanks again.

cplusplus

Thu, 03/04/2010 - 20:09

I thought following are the 3 contract types in fixed price category:

FFP commonly used contract type, price is set in the contract, unless there is an approved change request.


FPIF: - price is fixed plus incentive fee for hitting a target.


FPEPA: fixed price economic price adjust.
Economic stpulation included.

Thanks,

Raj

ChandraR

Thu, 03/04/2010 - 20:54

I don't remember where I come across FPAF.  May be it is a subset of FPIF.  PMBOK4- Page 323 talks about CPAF.

 

Chandra

pmptesttaker

Fri, 03/05/2010 - 19:02

In reference to close project or phase....in the PMPbook 3rd addition; there was administrative closure. Is that no longer the case?

I'm confused at the close project or phase stages/steps.

-Lauri

ChandraR

Fri, 03/05/2010 - 20:06

 Did u refer PMBOK 4 sections 4.6 and  12.4 (dealing with Closing process) after your exam to see whether the info provided at these 2 sections was good enough to answer the PMP exam Q's you faced?  Now after revisiting these 2 sections do you feel comfortable to handle those type of Qs again?

 

Chandra

pmptesttaker

Fri, 03/05/2010 - 20:30

I will go back to read those sections. I just know that the options to the questions were: Close project or phase, close project, close phase, close procrement, admin. closure, etc. I had a lot of questions with those examples of answers. I lost it ;-)

 

-Lauri

elkapitan

Sat, 10/04/2014 - 16:23

is Cost Plus Fee (CPF) and Cost Plus Percentage of Cost (CPPC) the same?

cplusplus

Fri, 03/05/2010 - 19:09

Administrative closure methodologies still applicable very important.

ashgoel

Fri, 11/26/2010 - 12:35

take this case

Target Cost= 150,000, Target Fee=30,000, Target Price = Target Cost+ Target Fee=180,000, Ceiling Price = 200,000, Sharing Ration=60/40,Actual Cost=210,000

PTA is "the amount above which seller bears the cost of overrun". The PTA is a benchmark to keep AC under control.

PTA = (CP-TP)/SR + TC = (200,000-180,000)/0.6+150,000=183,333

whereas Amount Payble is 200000 as AC>CP

 

now assume that AC=PTA=183,333

 

then Amount Payble = (TC-AC)*0.4+AC+TF=-33,333*0.4+183333+30,000=20000 but since this is higher, payment is 200,000. 

 

Is there any east way to remember these formulae??