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Discussion Board, Research Paper Example

Pages: 3

Words: 894

Research Paper

Which types of contracts do you think would be easiest for ADC to manage? Why?

In a firm-fixed-price (FFP) contract, one party agrees to pay a specific price when a contractor’s work has been completed and accepted. The contract price does not change. This is risky because a contractor accepts full cost responsibility when agreeing to this type of contract. This would be an effective choice for ADC because these contracts are generally used when for commercial items and standard services. A web-based scheduling system from a specialized vendor, packaged efficiently, could classify as a standard service. In addition to protecting ADC from any additional costs this could also result in saving money across the board if there are any bulk discounts or benefits of incorporating all departments of the company as a part of the contract.

Which types of contracts would be the most difficult for ADC to manage? Why?

A cost plus contract would be the most difficult for ADC to pull off, since ADC would basically be purchasing a service from a vendor that usually composed in simple monthly packages and leaving payment terms open-ended. As noted by Springer, “A cost plus incentive fee contract is a cost reimbursement contract that provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs (Springer, 2001).” This type of contract would pose many complications to DC because there is a high probability for misconduct and cheating by the other party. Profits can easily be lost, or at least not be dependable revenue sources with a cost plus, cost sharing, or time and materials contract.

What specific challenges do you think ADC would face when selecting the ideal type of contract?

One of the initial challenges ADC will face when selecting the ideal type of contract is the issue of initial cost verses fees upon completion. Fixed fee contracts pose the safest terms for ADC because they are not obligated to pay anything except for the initial price agreed upon. Since the service at hand is a web-based service provided by a vendor, in most cases, this means the service will came as a packaged deal with a fixed monthly cost.

Another challenge that can occur is growth or expansion in the future. If the contract does not have measures in place for the growth that can occur from company success, then both parties are at risk of breach of contract once the terms become irrelevant compared to the current exchange of service and compensation. This might suggest a target cost contract as the better choice.

What would you do personally to avoid or overcome these challenges?

Personally I can assess the true potential cost of the contract, future and present. It’s not possible to predict future unintended costs, but it is possible to write up a contract that accounts for miscellaneous additional fees through the allotment of an outside budget. Added stipulations in the contract could make a Fixed Fee contract ore enticing for some of the top web-based schedule service providers who would most likely shy away from this type of agreement.

The number one thing to avoid in all of this would be to leave the contract open-ended, for example in the form of a cost plus contract or a time and material contract. Singing contracts like these, in the case of ADC, could ultimately cripple the company as a whole.

What can you use to support your arguments?

Fixed Fee contracts are the safest contracts for ADC to pitch to contractors. The problem is they are also a very hard sell. The reason for this can be found in the fact that they pose no clear benefit to the contractor, but expect a lot of work in return. Support for this can be found in Kerzner’s work when he says,

“The type of contract that is acceptable to the client and the company is determined by the circumstances of each individual project and the prevailing economic and competitive conditions. Generally, when work is hard to find, clients insist on fixed-price bids. This type of proposal is usually a burden to the contractor because of the proposal costs involved (about 1 percent of the total installed cost of the project), and the higher risk involved in the execution of the project on such a basis (Kerzner, 2003).”

While Kerzner’s view makes it blatantly clear that in order to court a top tier service provider or vendor, a hybrid between a fixed fee contract and a cost plus contract is a must, it doesn’t necessarily mean it should be a Time and Material Contract. As noted by Springer, “Time and materials types of contracts are used predominantly when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any degree of confidence (Springer, 2001).” There is no need for a contract between ADC and a web-based schedule service vendor to not be able to come to terms and signing a contract that does not do so, would be to the detriment of ADC.

Work Cited

Kerzner, Harold. (2003). Project management: a systems approach to planning, scheduling, and controlling, eighth edition.

Samuelson, Paul. (2001). “Risk and uncertainty: A fallacy of large numbers,” Scientia 98. 108-113.

Stanberry, Scott. (2001). Federal contracting made easy.

Springer, Mitchell L.. (2001). Program management: a comprehensive overview of the discipline.

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