Distance Learning Center

1
Distance Learning Center

• Technology Project Management
• Procurement and Contracts
• Part Two
• Melissa Lin, IT Consultant
• HenEm, Inc. Parkville, Missouri
• linm_at_ipfw.edu
• http//www.etcs.ipfw.edu/linm

2
Procurement and Contracts

• Types of Contracts
• Incentive Contracts Cost Incentive
• Contract Type versus Risk
• Contract Administration Cycle Rights

3
Types of Contracts

• Fixed-Price (FP)
• Cost-Plus-Fixed-Fee (CPFF)
• Cost-Plus-Percentage-Fee (CPPF)
• Guaranteed-Maximum-Shared Savings (GMSS)
• Fixed-Price-Incentive-Fee (FPIF)
• Cost-Plus-Incentive-Fee (CPIF)

4
Contractors Risks
LEGEND
FFP FIRM FIXED PRICE
CPFF COST PLUS FIXED FEE
5
Firm-Fixed-Price Contract (FFP)

• MAXIMUM RISK WITH CONTRACTOR
• HIGHER NEGOTIATED PROFIT MARGINS
• HIGH LIKELIHOOD OF SCOPE CHANGES

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Firm-Fixed-Price With Economic Price Adjustments
(FPE)

• ADJUSTMENTS FOR ESCALATION FACTORS
• ADJUSTMENTS FOR INFLATION
• NEGOTIATED ADJUSTMENT CYCLE

RISK SHARING METER
100
0
RISK
CONTRACTORS
CUSTOMERS
RISK
RISK
LOCATION
0
100
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Incentive Contracts

• ADDITIONAL PROFITS ARE POSSIBLE BY LOWERING
  COST
• CUSTOMER AND CONTRACTOR SHARE COST SAVINGS

8
Principles of Incentive Contracts
CONTRACTORS 20
CONTRACTORS 20
9
Fixed-Price-Incentive-Fee Contract (FPIF)

• CONTRACTOR CAN EARN ADDITIONAL PROFITS
• CONTRACT HAS A CEILING ON PRICE (OR COST) PAID
• PRICE (OR COST) CEILING AT POINT OF TOTAL
  ASSUMPTION

10
Cost-Plus-Incentive-Fee Contract (CPIF)

• CONTRACTOR CAN EARN ADDITIONAL PROFITS
• ALL COSTS ARE REIMBURSED (COST RUN-UPS)
• A FLOOR AND CEILING EXISTS ON PROFITS

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Cost-Plus-Award-Fee Contract (CPAF)

• ALL COSTS ARE REIMBURSED (COST RUN-UPS)
• NEGOTIATED RANGE OF POSSIBLE PROFITS
• CUSTOMER DETERMINES PROFIT PAID AT COMPLETION

12
Cost-Plus-Fixed-Fee Contract (CPFF)

• ALL COSTS ARE REIMBURSED (COST RUN-UPS)
• FEE IS FIXED (IN NOT ) IRRESPECTIVE OF
  COSTS
• CONTRACTOR IS MOTIVATED FOR EARLY COMPLETION

13
Cost-Sharing Contract (CS)

• NO PROFITS ALLOWED
• CUSTOMER AND CONTRACTOR SHARE COSTS
• CONTRACTOR MAY RETAIN CONTROL OF

PROPRIETARY KNOWLEDGE AFTER COMPLETION
14
Cost Contract (C)

• NO PROFITS ALLOWED
• CONTRACTOR IS USUALLY A NON-PROFIT ORGANIZATION
• LIMITATIONS ON COSTS ALLOWED MAY BE IMPOSED

15
Cost-Plus-Percentage-Of-Cost Contract (CPPC)

• COSTS INCURRED MAY BE UNLIMITED
• CONTRACTORS CAN MAXIMIZE PROFITS
• SCOPE CHANGES MAY BE FREQUENT AND UNLIMITED

16
Relative Contract Risk
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Contract Administration Cycle

• Change management
• Specification interpretation
• Adherence to quality
• Warranties
• Subcontractor management
• Production surveillance
• Waivers
• Contract breach

18
Contract Administration Cycle (Continued)

• Resolution of disputes
• Project termination
• Payment schedules
• Project closeout

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Order of Precedence

• Specifications (first priority)
• Other instructions (second priority)
• Other documents, such as exhibits, attachments,
  appendices, SOW, contract date requirements list
  CDRL, etc. (third priority)
• Contract clauses (fourth priority)
• The schedule (fifth priority)

20
Type of Changes

• Administrative change
• Change order
• Contract modification
• Un-definitized contractual action
• Supplemental agreement
• Constructive change

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Causes of Constructive Changes

• Defective specification with impossibility of
  performance
• Erroneous interpretation of contract
• Over-inspection of work
• Failure to disclose superior knowledge
• Acceleration of performance
• Late or unsuitable owner or customer furnished
  property
• Failure to cooperate
• Improperly exercised options
• Misusing proprietary data
• Failure to cooperate
• Improperly exercised options
• Misusing proprietary data

22
Reasons for Termination for Convenience of the
Customer

• Elimination of the requirement
• Technological advances in the state-of-the-art
• Budgetary changes
• Related requirements and/or procurements
• Anticipating profits not allowed

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Reasons for Termination for Default Due to
Contractors Actions

• Contractor fails to make delivery on scheduled
  date.
• Contractor fails to make progress so as to
  endanger performance of the contract and its
  terms.
• Contractor fails to perform any other provisions
  of the contract.

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Contract Administration Rights

• Reject the entire shipment
• Accept the entire shipment (barring latent
  defects)
• Accept part of the shipment

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Summary

• Types of Contracts
• Incentive Contracts Cost Incentive
• Contract Type versus Risk
• Contract Administration Cycle Rights
• Next Project Evaluation and Closing

26
Question?

• Answers
• Email linm_at_ipfw.edu
• http//www.etcs.ipfw.edu/linm