Pricing Flashcards
What procurement option uses lump sum?
Traditional procurement
2 types of price based costing?
Lump sum
Unit price
Why use lump sum?
Cost certainty - payments in advance
Widely accepted
Changes are minimal
Issues with lump sum
Rick for contract, cost may increase eg earthworks
Tender price may increase to cover this risk
Who uses unit price?
Big civils
Roads
Earthworks
How is unit price determined?
Rates - BofQ
Admeasurement after works completed
Advantages of unit price (4)
Flexible
Comparison
Good for uncertainties
Easy to prepare tender docs
Disadvantages of unit price (3)
Uncertain
Cost of admeasurement
Little incentive for saving
4 cost based pricing methods
Guaranteed max price
Guaranteed max liability
Cost plus
Target cost
How are penalties shared in target cost?
Between both parties
Advantages of target cost (2)
Encourages on time & on budget
Incentive for both parties
Disadvantages of target cost (4)
Target needs adjusting
Admin costs
Unlimited risk for both parties
Expensive for small contracts
What is GMP
Contract sum will not exceed a specified maximum
What procurement method uses GMP
D&B - contractor is in charge of design so in good position to control costs
GMP issues (3)
No incentive for contractor to control cost - risk to client
Price may go up if brief changes
Contractor may not cost risk into price
