Contract types are often associated with two broad categories: fixed-price contracts and cost-reimbursable contracts. Briefly identify the factors to consider when determining which type is most appropriate for a planned contract

Answer 1

Key concepts to be covered in the response could include, but are not limited to:

Fixed price contract - An agreement that sets the fee that will be paid for a defined scope of work regardless of the cost or effort to deliver it.

This type of contract is appropriate when the scope and costs are well known, and it is the lowest risk to the buyer.

There are several variations on the Fixed Price Contract such as Fixed-Price-Incentive-Fee (FPIF), which allows adjustments to the price for meeting predefined performance criteria, and Fixed-Price-Economic-Price-Adjustment (FP-EPA) to account for market fluctuations or inflation.

Cost-Reimbursable Contract - Involve payment to the seller for the seller's actual costs plus a fee typically representing the sellers profit.

In this type of contract the project scope or costs are not well known up front, and the cost risk is absorbed by the buyer.

Contract types include Cost-Plus-Fixed-Fee (CPFF) contracts where the buyer reimburses the seller for the seller's allowable costs plus a fixed amount of profit (fee).

Other variations include Cost-Plus-Incentive-Fee (CPFF), Cost-Plus-Award-Fee (CPAF).