Oliver Lehmann question #23

Submitted by anaz on Sat, 05/24/2014 - 19:05

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?

A. The contractor‘s indirect costs will increase and the customer‘s payment for them will increase, too.

B. The contractor‘s indirect costs will increase, but the customer‘s payment for them will not increase.

C. The contractor‘s indirect costs will not increase, but the customer‘s payment for them will.

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

Since this is CPFF, I reasoned that the cost will increase and the buyer has to increase his payment as well. The website gives D as the answer. I am confused why the cost and payment remains the same. Can someone explain please?

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sunku65

Sun, 05/25/2014 - 07:15

D is correct.

The Company X has obtain a agreement to deliver a product to the Customer  Y..

The company X has responsibe to deliver the Product to the Customer Y(here what contract type we don't care)..

Here the Company X(Buyer) has contracted to Prime Contractor Z (Seller) on CPFF basis.

Now it is Company X responsible to bear additional cost whatever mentioned in question.

No connection at all to increase indirect costs to Customer Y or Prime Contractor Z .

Thanks,

Lax

kevinkkyip

Mon, 05/26/2014 - 11:53

Direct cost will increase but indirect cost will not