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What is Cost plus variable fee?
It is a type of contract, mostly for construction, whereas the fee over cost payable to the contractor varies depending, most usually, on the trade i.e. item of the works.
The following data is received from your contractor budgeted cost of work performed (BCWP) 200 budgeted cost of work scheduled (BCWS) 300 actual cost of work performed (ACWP) 400 budget at completion?
To analyze the contractor's performance using Earned Value Management (EVM), we calculate key metrics. The Cost Performance Index (CPI) is calculated as BCWP/ACWP, which equals 200/400 = 0.5, indicating cost overruns. The Schedule Performance Index (SPI) is BCWP/BCWS, which equals 200/300 = 0.67, indicating the project is behind schedule. These results suggest the contractor is both over budget and delayed in their work progress.
What is the difference between prime cost and work cost?
Prime Cost has two meanings in construction. 1) Prime cost is the sum of all of the specialist works and specialist materials from nominated sub-contractors (NSC) and suppliers on site. The main Contractor can place a % profit and attendance on NSC, this must be adjusted in the final account. This is a Prime Cost as referred to in the Bill of Quantities 2) Prime cost in regards to a contract is the sum of all the major works which the Main Contractor must produce under the contract. Maybe knowing this will help you see the difference? I have never heard the phrase "work cost" to compare with prime cost.
What is the Cost Plus Incentive Formula?
The Cost Plus Incentive Fee (CPIF) formula is a type of contract used in project management where the contractor is reimbursed for their allowable costs and additionally receives an incentive fee based on their performance. This fee is typically calculated as a percentage of the cost savings achieved under a predetermined budget. The purpose of this formula is to motivate the contractor to control costs and complete the project efficiently while ensuring that the client only pays for the actual expenses incurred. It balances risk and reward between the contractor and the client.
Do you put an independent contractor as an expense or income in the general ledger?
An independent contractor is classified as an expense in the general ledger. When you pay an independent contractor for their services, you record the payment as an expense, typically under a category such as "Contract Labor" or "Professional Services." This reflects the cost of the services provided, which reduces your net income. Income, on the other hand, refers to revenue generated from your business activities.
Which type of contract shifts the risk of cost overruns to the contractorAsk us anything?
A fixed-price contract shifts the risk of cost overruns to the contractor. In this arrangement, the contractor agrees to complete the project for a set price, regardless of any unforeseen expenses or increases in material costs. This incentivizes the contractor to manage costs effectively, as they will absorb any excess expenses beyond the agreed price.
What type of contract shifts the risk of cost overruns to the contractor?
A fixed-price contract shifts the risk of cost overruns to the contractor. In this type of agreement, the contractor agrees to complete the project for a predetermined price, regardless of any unforeseen expenses that may arise. If costs exceed the agreed-upon amount, the contractor must absorb the additional expenses, incentivizing them to manage costs effectively and complete the project within budget.
Which type of contract shifts the risk of cost overruns to the contractr?
Fixed-Price Incentive
Describe the contract type of Cost Plus Incentive Fee (CPIF)?
A Cost Plus Incentive Fee (CPIF) contract is a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs incurred during the project, along with an additional fee that is based on the contractor's performance. The incentive fee is typically structured to encourage cost savings and efficiency, meaning the contractor may receive a higher fee if they complete the project under budget or meet specific performance targets. This contract type aligns the interests of both the contractor and the client, promoting collaboration while controlling costs. However, it also requires careful monitoring to prevent cost overruns.
What is a TPC contract?
A TPC (Total Project Cost) contract is a type of construction agreement where the contractor is compensated for the total costs incurred in completing a project, plus a fee for their services. This fee can be a fixed amount or a percentage of the total costs. The TPC contract aims to provide transparency and accountability in project budgeting, as it encourages collaboration between the contractor and the client while minimizing the risk of cost overruns. However, it may also lead to higher overall costs if not managed effectively.
What contract puts the full performance risk on the contractor?
Cost Reimbursement.
What is an example of a problem that can arise in a cost plus contract?
A contractor may even try to double-count a cost item by including it as a direct cost of the contract and as a part of an indirect cost pool allocated to the contract.
What is mobilization cost?
the cost for transfer of a contractor's physical and manpower resources to a construction site until the completion of the contractthe cost for transfer of a contractor's physical and manpower resources to a construction site until the completion of the contract
How many Types of contract in civil engineering?
Contract In law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy According to legal scholar Sir John William Salmond, a contract is "an agreement creating and defining the obligations between two or more parties". Construction contract Formal agreement for construction, alteration, or repair of buildings or structures (bridges, dams, facilities, roads, tanks, etc.). A construction contract is distinct from a contract to assemble, fabricate, or manufacture. While construction contracts serve as a means of pricing construction, they also structure the allocation of risk to the various parties involved. The owner has the sole power to decide what type of contract should be used for a specific facility to be constructed and to set forth the terms in a contractual agreement. It is important to understand the risks of the contractors associated with different types of construction contracts. Lump Sum Contract In a lump sum contract, the owner has essentially assigned all the risk to the contractor, who in turn can be expected to ask for a higher markup in order to take care of unforeseen contingencies. Beside the fixed lump sum price, other commitments are often made by the contractor in the form of submittals such as a specific schedule, the management reporting system or a quality control program. If the actual cost of the project is underestimated, the underestimated cost will reduce the contractor's profit by that amount. An overestimate has an opposite effect, but may reduce the chance of being a low bidder for the project. Unit Price Contract In a unit price contract, the risk of inaccurate estimation of uncertain quantities for some key tasks has been removed from the contractor. However, some contractors may submit an "unbalanced bid" when it discovers large discrepancies between its estimates and the owner's estimates of these quantities. Depending on the confidence of the contractor on its own estimates and its propensity on risk, a contractor can slightly raise the unit prices on the underestimated tasks while lowering the unit prices on other tasks. If the contractor is correct in its assessment, it can increase its profit substantially since the payment is made on the actual quantities of tasks; and if the reverse is true, it can lose on this basis. Furthermore, the owner may disqualify a contractor if the bid appears to be heavily unbalanced. To the extent that an underestimate or overestimate is caused by changes in the quantities of work, neither error will effect the contractor's profit beyond the markup in the unit prices. Cost Plus Fixed Percentage Contract For certain types of construction involving new technology or extremely pressing needs, the owner is sometimes forced to assume all risks of cost overruns. The contractor will receive the actual direct job cost plus a fixed percentage, and have little incentive to reduce job cost. Furthermore, if there are pressing needs to complete the project, overtime payments to workers are common and will further increase the job cost. Unless there are compelling reasons, such as the urgency in the construction of military installations, the owner should not use this type of contract. Cost Plus Fixed Fee Contract Under this type of contract, the contractor will receive the actual direct job cost plus a fixed fee, and will have some incentive to complete the job quickly since its fee is fixed regardless of the duration of the project. However, the owner still assumes the risks of direct job cost overrun while the contractor may risk the erosion of its profits if the project is dragged on beyond the expected time. Cost Plus Variable Percentage Contract For this type of contract, the contractor agrees to a penalty if the actual cost exceeds the estimated job cost, or a reward if the actual cost is below the estimated job cost. In return for taking the risk on its own estimate, the contractor is allowed a variable percentage of the direct job-cost for its fee. Furthermore, the project duration is usually specified and the contractor must abide by the deadline for completion. This type of contract allocates considerable risk for cost overruns to the owner, but also provides incentives to contractors to reduce costs as much as possible. Target Estimate Contract This is another form of contract which specifies a penalty or reward to a contractor, depending on whether the actual cost is greater than or less than the contractor's estimated direct job cost. Usually, the percentages of savings or overrun to be shared by the owner and the contractor are predetermined and the project duration is specified in the contract. Bonuses or penalties may be stipulated for different project completion dates. Guaranteed Maximum Cost Contract When the project scope is well defined, an owner may choose to ask the contractor to take all the risks, both in terms of actual project cost and project time. Any work change orders from the owner must be extremely minor if at all, since performance specifications are provided to the owner at the outset of construction. The owner and the contractor agree to a project cost guaranteed by the contractor as maximum. There may be or may not be additional provisions to share any savings if any in the contract. This type of contract is particularly suitable for turnkey operation.
What type of contract allows for the contractor to charge the cost of rework to the government?
A cost-plus contract, specifically a cost-plus-incentive-fee (CPIF) or cost-plus-fixed-fee (CPFF) contract, allows the contractor to charge the cost of rework to the government. In these contracts, the contractor is reimbursed for allowable expenses incurred during the performance of the work, including costs associated with rework. This structure incentivizes efficiency while ensuring the government covers necessary costs, including those arising from defects or errors.
What is lump sum project?
A lump sum project is a construction or service contract in which a single fixed price is agreed upon for the entire project, regardless of the actual costs incurred. This contract type transfers the risk of cost overruns to the contractor, who must manage expenses within the agreed budget. Lump sum agreements are often favored for their simplicity and clarity, as they provide clients with a clear understanding of total project costs upfront. However, they require careful planning and accurate estimation to avoid financial losses for the contractor.
How would you describe a cost-plus contract?
Often the federal government issues contracts to the private sector on a cost-plus basis; that is, all the actual costs incurred to complete a contract plus a percentage of profit is reimbursed to the contractor performing the contract.
