Rework Cost for CR contracts

Submitted by majjour on Fri, 05/25/2012 - 09:14

I have awarded a seller a CR contract plus a fixed fee.

I was inspecting the results and 10 delivrables needed rework? who will pay for this the buyer or the supplier? if nothing is specified in the contract.

 

Related to lehmans question:

Question:

A prime contractor in a customer project under CPFF contract has run into unexpected technical problems. Fixing them will require a lot of additional work to be done.

The company made a decision to book more staff and equipment from their subcontractors in order to adhere to the agreed timeline. The customer agreed to this decision.

What will most likely happen?

Answer:

Both the contractor's indirect costs and the customer‘s payment for them will not increase.

 

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PMNovice

Sat, 05/26/2012 - 16:45

 Hello,

 I think your question is little bit different than Oliver's (which you have quoted below) because Olivers question talks about indirect cost. But in your question since the customer has already paid for the deliverables then contractor must fix the deliverables whether himself or get it done by a sub contractor.

So although Customer will not have to pay the subcontractor will have to pay to their subcontractor to get those done.

Oliver is talking about indirect cost but in this case labor hours seems to be direct cost to me.

Saket & other Guru's please respond.

projmanpro

Sat, 05/26/2012 - 17:03

The question is quite ambiguous. This person represented by "I" works for? is he working for the buyer or the supplier (seller)? Nevertheless, the issue for me is - why do the deliverables need rework? non-compliance to the required specifications? or additional features were requested by the buyer? These facts are not clearly mentioned in the question. If the reason of rework is due to failure of the supplier to deliver the product within the prescribed and agreed specifications, then it is his sole obligation to deliver these as required, so why should i pay for him? However, if the rework is due to additional features or let me say, features that are not clearly defined in the contract or scope of work, then lately only was realized to be added, then i can reimburse whatever the cost of rework.

saket_pmp

Sat, 05/26/2012 - 17:44

The first comment is that, I agree with “projmanpro”, it’s difficult to understand the question. I have tried answering it assuming, my understanding is correct.


I have awarded a seller a CR contract plus a fixed fee.
So, here who is “I”, should be some manager or some senior, lets say buyer, fine! I guess its Cost Plus Fixed Fee and not “contract plus a fixed fee”, anyway, its understandable.


I was inspecting the results and 10 deliverables needed rework?
Not sure why he is asking this, I see question mark “?”. Lets assume “?” is typo error, so it means the buyer is validating and then he concludes that 10 deliverables needed rework.


Who will pay for this the buyer or the supplier? if nothing is specified in the contract.
In CPFF “Fee amounts do not change unless the project scope changes and also does not change due to seller performance.” Buyer saying “10 deliverables needed rework” means the scope is the SAME but the deliverable quality is not acceptable to the buyer and hence he says “Do re-wok and give me the deliverables as per my agreed-upon scope expectations”. Assuming this – the supplier has to bear the cost of re-work. Since the question says very clearly it’s CPFF, and hence I do not see any reason why it needs explicit highlighting.