Types of contracts
- As a buyer of PMaas what contract would be best for you and why
The Fixed price with Economic Price Adjustments contracts FP-EPA.
The FP-EPA is the best contract for the buyer since it protects them from any price increment if an externals force, for instance, inflation. In this type of contract, the contract price is fixed. Before engaging in these contracts, then requirements need to be well defined. The seller is likely to face potential risks under this contract and least for the buyer.
The seller is likely to face financial damage if they face delivering quality goods and services to the buyer—the price of products and services not subject to any form of change. The seller is entitled to provide goods and services within a specific agreed initial price. Any additional cost in the expenses is purely the sellers’ responsibility.
Under the fixed-price contract, the buyer is likely to enjoy certain privileges; for instance, they cannot pay for goods and services that have been delivered. Secondly, the buyer is also expected to enjoy first, and quality delivery of products and services since buyers only pay for goods that pleases them. Besides, there is no restriction on the expenditure cost when to the seller, which implies that the buyer is prone to receiving having the best and quality goods and service delivery.
- As a seller of PMaas what contract would be best for you and why
Cost-plus Fixed Fee Contract (CPFF)
The cost fixed-fee contract is the most suitable contractor for the seller. In the CPFF, the buyer of any goods or services so supposed to pay the full amount of all the cost incurred or the expenses for the products or services provided. Besides, the buyer is also supposed to pay an additional specified amount of money to the seller as profit. Before engaging in this agreement, the seller is supposed to show all the expenses related to the goods and services they provide to the buyer. These expenses include the direct cost, indirect cost as well as the profit.
The direct cost is the actual cost of the goods and services the seller provides to the buyer. It is the money spend to complete the scope of work under the contract, for instance, materials, equipment, labor or logistics. On the other hand, interest cot is overhead costs. These are the costs the seller had used on the things related to business operation, such as renting an office and insurance. The seller is likely to have a difficult time trying to convince the buyer to include the cost of these indirect expenses to their contract payment plan. However, the buyer has a much chance of covering most of these indirect costs to the contract payment plan. Finally, the seller is also likely to be added to both direct and indirect charges as profit.
Therefore, this implies that the CPFF is more beneficial to the seller since all the expenses spent on goods and services would be reimbursed by the buyer, hence making it to be budget-friendly. Besides, the seller is not required to estimate the specific cost of the production of goods since all the money spent would be paid back by the buyer. Finally, the seller is guaranteed options maximum price where they can limit the spending on a given project.
- What contract would create a win-win situation for both the buyer and the seller and why
Time and Materials Contract
This a contract that creates a win-win situation between the buyer and the seller. The buyer would acquire or pay for supplies or services based on the direct labor hours using the loaded labor rates as well as the materials and the cost of end products. Under the time and material contract, the prices are fixed, but the hours are not fixed.
Under the time material contract, both the seller and the buyer are responsible for any losses incurred. The cost risk is customarily shared equally between these two parties. This implies that in this contract, there is high management and augmentation of resources. The buyer and the seller may be required to be very objective in what they have to achieve at the end of the project, depending on their expenditure. Having a clear objective would ensure that a given project runs to completion without shutting it down.