w3_Thuraiya_Contract type for advisory service

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Contract type for Advisory service
1-      Problem identification:
The contracts are categorized by the payment methodology. To choose the appropriate contract type the company must measure the definition of the scope of work provided to the contractor. Our company currently is using Firm Fixed Price contracts. However, the scope of work is defined between (50%-70%). This blog investigates the appropriate contract type to be used for our company.
2-      Feasible Alternatives
The Contracts are categorized into four types which are:
                     I.            Lump Sum Contract
                   II.            Unit Price Contract
                 III.            Cost Plus Contract
                IV.            Incentive Contracts
Still there are other types. However, they fall under those main four types.

3-      Development of the outcome of the alternatives

There are several advantages and disadvantages for the owners when using the different type of contract as illustrated in the table below:



1-      Selection criteria
In order to choose the appropriate type of contract to be adopted by our organization the following aspects must be determined:
·         Flexibility for additional or reduction of scope: this is very important aspect as we noticed that there are many requests to extend the scope for additional services.
·         Quality of the services: highly important.
·         Detail provided in the scope of work requirement: not very detailed and to be negotiated.
·         Owner financial risk: to be shared between the owner and the contractor.
·         Details spec, volume and scope of work requirements.
·         Owner supervision: very high level.
·         Price negotiation: highly important.

2-      Analysis and Comparison of the alternatives:
The table below the attributes of the contract type:


By using Nondimensional scaling from Chapter 14. Decision Making Considering Multiattributes; Engineering Economy Book and applying it as follow:



1-      Selection of the preferred alternative

From the above data, it is clear that the lump sum contracts are not the best choice for our advisory service. The result shows that the incentive contracts are the most suitable type of contracts. Both unit price and cost plus are much preferable than lump sum.


2-      Performance monitoring and the post evaluation results
The management needs to consider the incentive contracts to be used in our organization for the maximum benefit as a replacement for the lump sum contracts. The cost and quality to be monitor when adopting this type of contracts to measure the changes.

3-      References

1-      Project Contract Types, visited on 22.11.2017
http://www.tutorialspoint.com/management_concepts/project_contract_types.htm
2-      Wiley, et al, selecting the type of contacts, visited on 22.11.2017
https://pm4id.org/chapter/9-5-selecting-the-type-of-contract/
3-      Juan Rodriguez, October 23, 2017 Learn About Lump Sum Construction Contracts, visited on 22.11.2017
https://www.thebalance.com/lump-sum-construction-contract-844915
4-      Fakhri, 13.10.17, W10_MFO_Contract Type for EPC Project, visited on 22.11.2017
https://emeraldaace2017.com/2017/10/13/w10_mfo_contract-type-for-epc-project/



Comments

  1. Dr. PDGNovember 23, 2017 at 1:29 PM

    Love it, Ms. Aiya!!! You need to be very careful whenever crafting incentives as unless done very carefully they may result in UNINTENDED CONSEQUENCES. I think you alluded to that in Step 7, but to clarify, to yield the best return on your investment, you need to incentivize everything that is important to you. And the incentives don't necessarily have to cost a lot. We used to give out gift certificates to local restaurants as rewards for achieving safety and environmental goals.

    The key to ANY incentive system is make the reward as close as possible to the desired behavior- remember "doggy biscuit" project management? That as soon as your dog does the trick you give him a doggy biscuit? Waiting until the next day doesn't really help much.

    Keep that basic concept in mind whenever you create an incentive program of any type. There has to be close proximity between the time the desired behavior happened and the reward is given.

    Looking forward to your next blog!!

    BR,
    Dr. PDG, Jakarta

    ReplyDelete

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