negotiation and contracts

Question 1

Name the different types of contract

Answer 1

spot - made on standard terms, little scope for negotiation

standard - contract is undertaken under the buyer’s or seller’s standard terms and conditions

model - model contracts provided by industry associations, common in building, and civil engineering industries

bespoke - negotiated and tailored to the needs of the deal in question

Question 2

What does the content of a contract include?

Answer 2

requirements and responsibilities (e.g. price, deliverables, timescales)

risk (sharing of risk)

liquidated damages (pre-estimated losses)

contract pricing

post-sale liability

cancellation and disputes

Question 3

What are the main pricing options?

Answer 3

reimbursable
fixed price
measurement

Question 4

what is fixed pricing/lump sum and what are + and -?

Answer 4

contractor takes the risk of project taking longer/costing more

• fixed price is given for the work, may include some flexibility
• requires precise definition of the scope of the work from the outset and stable conditions

+ cost is known at outset
+ contractor motivation to deliver

• slower contract start-up, work definition takes longer
• customer has less influence over contractor’s output

Question 5

what is reimbursable pricing and what are the + and -?

Answer 5

customer takes the risk of project taking longer/costing more

+ useful if its not possible to define scope of work at outset
+ customer has greater influence over performance

• cost is unknown until later stages
• higher risk to consumer

Question 6

what is measurement pricing and what are the + and -?

Answer 6

price is based n the amount of work to be done, against an agreed itemised list. Common in construction and civil engineering projects.

schedule of rates - list of prices for different types of work. customer pays for work actually done, against the schedule of rates

+ common method for when there is already relationship build up

Question 7

Give some examples of reimbursable pricing

Answer 7

e.g.
cost plus - customer pays the cost plus n agreed fixed or percentage profit margin <br></br>
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target cost - customer pays up to an agreed limit plus a contractor fee <br></br>
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time rate or daywork - consultancy, price based around organisations rate for consultants