CSM726 - Assignment 1 - Vivek Chhatrola

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Apr 3, 2024

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Week 4: Contract Types Assignment (Two Parts) Vivek Chhatrola | 301398299 1/3 Part One: Carefully read each question, then fill in the answer for each type of contract. (Justify your answer) Question Cost Reimbursable Time and Material Fixed Price 1. Generally, what is being bought? (product or service) A service. The buyer pays for the actual costs incurred by the seller plus an agreed-upon fee, usually a percentage of the total project cost. A combination of time and materials. The buyer pays for the hours worked by the seller at an agreed-upon hourly rate, plus the cost of any materials used. A product or service with a defined scope. The buyer pays a set price for the delivery of specified goods or services. 2. What is the cost risk to the buyer? (high, medium, low, none) High. Since the buyer is paying for the actual costs incurred by the seller, there is no ceiling on the potential costs that the buyer may be required to pay. This means that if the seller experiences unexpected expenses or delays, the buyer could end up paying more than they anticipated. Medium. While the buyer has some control over the number of hours worked, the cost of materials can vary depending on the specific requirements of the project. If the seller encounters unexpected difficulties or delays, the buyer may end up paying more than they expected. Low. Once the contract is signed, the price is fixed, and the seller absorbs any additional costs incurred during the project. This provides the buyer with greater cost certainty and protection against unexpected expenses. 3. How important is a detailed procurement statement of work? (high, medium, low, none) High. A well-defined scope of work is crucial to ensure that both parties understand what services are included in the project and how they will be compensated. Without a clear scope of work, the buyer may end up paying for services that were not originally intended, leading to disputes and potential litigation. High. As with a cost reimbursable contract, a clear scope of work is essential to define what tasks are included in the project and how they will be compensated. Without a clear scope of work, the buyer may end up paying for unnecessary or unintended work, leading to disputes and potential litigation. High. A precise scope of work is necessary to clearly outline the expectations for the project, including deliverables, timelines, and quality standards. This helps ensure that the seller meets their obligations and provides the buyer with the desired outcome.

Week 4: Contract Types Assignment (Two Parts) Vivek Chhatrola | 301398299 2/3 4. What industry uses this type of contract the most for its contracts? This type of contract is commonly used in professional services such as consulting, engineering, and legal services. It allows clients to tap into specialized expertise without having to manage the details of the work themselves. Time and material contracts are common in industries where the scope of work is not well defined, such as software development, construction, and repair services. Fixed-price contracts are prevalent in manufacturing, construction, and IT projects where the scope of work is well-defined. They offer buyers predictability and budget certainty, allowing them to plan and allocate resources more effectively. 6. Which type of contract should you avoid for long-term projects? And why? (Write you answer under the type of contact selected) Not recommended. Since there is no fixed price, the buyer may end up paying more than they would have with a fixed-price contract. Additionally, the lack of a clear endpoint can make it difficult to predict when the project will be completed, which can create uncertainty and potential disagreements between the buyer and seller. Can be suitable. Depending on the nature of the project, a time and material contract can provide flexibility for both parties. However, it's essential to establish clear guidelines for tracking hours worked and managing changes to the scope of work to prevent misunderstandings and disputes. Suitable. Fixed-price contracts provide clarity around pricing and delivery, making them ideal for long- term projects. However, it's essential to include provisions for change management to address any scope modifications that may arise during the project. This ensures that both parties agree on the impact of any changes on the project timeline and budget.

Week 4: Contract Types Assignment (Two Parts) Vivek Chhatrola | 301398299 3/3 Part Two: You are a Procurement Manager. Carefully read over the five requests below and state the contract type you think best satisfies the objectives of the department requesting the purchase and why. The ‘why’ should be answered in point form of 5 words or less. 1. The Construction team needs a fleet of Skyjack vehicles for additional ceiling height never before accommodated. Additionally, vehicle training and Fall Arrest certification must be provided by the vendor. The machine and training would be paid for out of the department’s capital budget, which has already been set for the upcoming year. Contract type: Fixed price with Economic Price Adjustment (FPEPA) Why: fixed quantity of vehicles, predictable costs, capital budget constraints 2. The Maintenance department wants a new tool storage area in the plant--the contractor would be responsible for all the materials and construction. The department’s budget seems likely to be entirely consumed by this effort, but the department manager would still like to have a little money left over from the contract to buy some badly needed new tools as well. Contract type: Cost plus Fixed Fee (CPFF) Why: Budget flexibility, desired outcomes; allow for additional changes, uncertain material needs 3. A valued customer is complaining of delays in the completion of his custom home. Two drywall personnel are needed temporarily to drywall/tape/prime this ‘custom’ home for approximately two weeks duration. The tradesmen within the company are over -taxed with scheduled work. Contract type: Time and Material Contract (TMC) Why: Short term, flexible, specialized labor, uncertain duration and workload

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