Another Question on Contract

24 Your program manager has come to you, the project manager, for help with a bid for her newest project. You want to protect your company from financial risk. You have limited scope definition. What is the BEST type of contract to choose?




  1. Fixed price (FP)



  2. Cost plus percent of cost (CPPC)



  3. Time and material (T&M)



  4. Cost plus fixed fee (CPFF)


Answer D


Why answer is D, not B? "You want to protect your company from financial risk". So I should put risk on seller's side. D is not the answer, because "You have limited scope definition". C is not right. Only B or D left. Why not B?

Q is from buyer's point of view. 

So the BEST type of contract to choose?

  1. Fixed price (FP) ~ Ruled out as there is only limited scope definition

  2. Cost plus percent of cost (CPPC) ~ Ruled out because of buyer' financial risk, and this contract type does not motivate the seller to control costs..it means seller anyway will get actual costs + % of costs as profit..as actual cost becomes higher, seller profit also goes high..!

  3. Time and material (T&M) ~ Ruled out again because this puts the financial risk more towards buyer as seller profit is made within every unit rate.

  4. Cost plus fixed fee (CPFF) ~ Suitable here with actual costs + some fixed fee

    Hope this helps.

 

Thank you!