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Contract Types

15 January, 2016 - 09:16

You should know a little bit about the major kinds of contracts available to you (the client) so that you choose the one that creates the most fair and workable deal for you and the contractor. Some contracts are fixed price: no matter how much time or effort goes into them, the client always pay the same.Figure 13.1 A fixed-price contract the cost to the client is constant regardless of effort applied or delivery date.  the cost to the client stays the same, but as more effort is exerted the profit to the contractor goes down. Some are cost reimbursable also called cost plus. This is where the seller charges you for the cost of doing the work plus some fee or rate. Figure 13.3 In a cost-reimbursable or cost-plus contract, the contractor is guaranteed a fee, but the client’s costs can increase based on effort illustrates this by showing that as efforts increase, costs to the client go up but the contractor’s profits stay the same. The third major kind of contract is time and materials. That’s where the client pays a rate for the time spent working on the project and also pays for all the materials used to do the work. Figure 13.4 In a time-and-materials contract the profit to the contractor increases with increased effort, as does the costs to the client.  shows that as costs to the client go up, so does the profit for the contractor.