w3_Thuraiya_Contract type for advisory service
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
2-
Wiley, et al,
selecting the type of contacts, visited on 22.11.2017
3-
Juan Rodriguez,
October 23, 2017 Learn About Lump Sum Construction Contracts, visited
on 22.11.2017
4-
Fakhri, 13.10.17, W10_MFO_Contract
Type for EPC Project, visited on 22.11.2017
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.
ReplyDeleteThe 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