Evaluating Fixed-price Contract - Article Example

FAR) Evaluating a Contract (FAR) Evaluating a Contract According to Berends (2000), cost reimbursement and fixed costs are two contacts of developing contracts for organizations. Fixed-price contracts are prices that are not subjected to any adjustments. It usually places upon the independent highest risk and maximum accountability for all prices and subsequent profit. It offers maximum motivation for the service provider to influence costs of services or commodities and work effectively (Garner, 2009). In that, through this agreement several organizations are in a position to give fixed prices for their goods and services offered. Fixed prices contracts imply that the companies offer or takes an arrangement to finish a signed project for an agreed price stated at the beginning of the project. In general, the prices of fixed cost contract are typically tied to implementation or deliverables, and in case implementation is not achieved, the guarantor is not compelled to pay. In case the implementation is achieved, the guarantor is contractually obliged to compensate what has not been achieved (Stanberry, 2012). Fixed costs have an advantage because customers increasingly like fixed costs because of the directness in deliberating the cost presented to them. For organizations, fixed cost can streamline sales predicting methods (Stanberry, 2012). The major disadvantage for most organizations using this contract is that dangers of putting fixed costs that are too little, and placing them in lots of uncompensated working hours and resources expenditures is difficult (Stanberry, 2012). Although fixed cost agreement requires fixed price, it does permit the service provider to claim supplementary prices for any differences to the requirement. An organization can also make claims for allocation of extra time that is beyond their own control. Berends (2000) noted that normally a more comprehensive agreement that puts up suitable materials prices the organization can request reimbursement for the project is known as cost reimbursement agreement. This type of agreement varies from simple price contracts with no working cost, as well as incentive agreements, and the communal cost and fixed price contract. Cost reimbursable contracts are constructed on definite expenses. The main benefit is that an organization understands what price will be understood on a project irrespective of the time and costs of prices. The agreement also influences the suitable use of resources and materials. All individuals involved have a clear image as to the level of their obligations. This contract also provides a clear analysis of the prices of all characteristics of the organization. There is the risk of buying materials, goods and receiving into a disagreement over compensation. In the organization and customer markets, clients are likely to be reluctant make agreement with the total prices (Stanberry, 2012). As a small business, our business is flexible this is because small organization encounter less administrative procedures (Stanberry, 2012). The reduced procedures enable the organization to react to in market transformations quickly than large organizations that have to go through many administrative procedures to adapt the market changes. According to Stanberry (2012), small organizations can move around where large organizations cannot move. In the developing world, businesses are experiencing the challenge of adjusting to the rapid transformation in the society. As a small business, our organization manages to interact with clients freely unlike the way huge business do. This is because large organizations spend a lot of money trying to develop this level of personal interaction within the organization. Finally, as a small organization, we are in a position to less likely to affect the environment. Steadman (2006) noted that small organizations are likely to be providing to their environment, which implies less use of motors and encouraging walking. A cost-reimbursable agreement provides the organization flexibility to readdress a seller when the range of exertion cannot be accurately recognized and described in the beginning and needs to be reformed, or when extraordinary dangers may be present in the attempt. That is in case the consumer does not know what they need to buy. This form of agreement allows the organization to move without informing the seller. However, this can affect a small business in terms of customer maintenance and interaction between clients (Stanberry, 2012). Furthermore, cost-reimbursement agreements may only be expended when decisions involved in agreement implementation do not allow prices to be assessed with adequate exactness to use any fixed cost contract. The contract can only be used when long-term characteristic is the main concern than prices agreed (Garner, 2009). Selecting type suitable contract is important to profitable value under an agreement. The kind of agreement determines the price and implementation risks which are put on the agreement. Other types of contract that can be used within the small business include. Letter agreements, which refers to an agreement is an initial tool, which allows a servicer to start the process of implementation when not all of the agreement terms and circumstances have been settled. The agreement only works in urgent circumstances (Garner, 2009). The fixed-price contracts will benefit our small organization because the expanse of compensation does not depend on the price allocated on the resources or allocated time, as opposed to cost-reimbursement agreement, which is meant to cover the costs plus some amount of profit. Fixed prices require more time for the clients to make a decision. However, this tends to move faster than the cost-reimbursement prices. Above all, the prices will enable the business in pre-determining the price of the entire commodity. For instance, the price estimates of instruments (Garner, 2009). A fixed-price cost provides both the seller and buyer a predictable situation, offering firmness for both throughout the period of the agreement. A purchaser may be anxious about the price of a commodity or service increasing suddenly, adversely influencing the organization’s plans. On the other hand, the merchant may be worried about the price of his commodity or service reducing suddenly, decreasing his profits with an insignificant warning. Furthermore, a consumer may also help from the predictability of a fixed cost agreement because any extent of ambiguity on the absolute cost of the implementation exceeding early estimates periods entirely to the vendor (Garner, 2009). Cost reimbursement agreement is the best for big organizations because through the contract, organizations permit for compensation of all sustained prices, within a prearranged limit that might be provided to the agreement are acceptable within price standards and practical. Thus, all sorts of cost reimbursement agreement place the lowest price and performances attempt on the agreement. Other agreements that are suitable for full-size organizations like the Boeing include the cost and fixed cost contract, which means that the service provider will obtain back prices and a program chosen price. This expense does not transform in spite of the price spent on resources (Garner, 2009). Cost-reimbursement agreements are appropriate for exhaustion when uncertainties entangled in agreement functioning do not allow prices to be anticipated with enough accuracy to benefit any amount of fixed cost contract (Stanberry, 2012). Big organizations can also use the cost and incentive agreement, which means the service provider, receives a larger cost than when the organization archives positive goals like keeping prices down or finishing the project in a chosen time. Apart from the two contracts, big organizations can use cost and award agreement, which means that the service provider is, compensated an increased cost if they obtain certain implementation metrics or standards for effective performance. Finally, big organizations can use cost and fraction of prices agreement means that the service provider fee increases as the real price rise (Stanberry, 2012). In order to acquire contract from the government, the organization will first conduct a requirements analysis, conduct an evaluation plan, and then the organization will plan for an invitation to tender. Finally, the organization will conduct an evaluation of their developed proposal (Stanberry, 2012). Furthermore, for a contract to be accepted by the government, the contract must be officially enforceable by law, it should entail some key components. For instance, the organizations that signed the contract should reach an understanding and should offer something important known as consideration (Stanberry, 2012). They should also ensure that the organization has a contract to offer to the government and to their clients or even perform a service to their targeted clients. According Stanberry (2012) a good contract needs the service provider to conduct the creation according to the diagrams and description developed or drawn up by the intention team. Apart from this, the organization should ensure that the government and their targeted consumers accept all the goods and services they are offering. The contract should be effective in terms of the organization’s implementation procedures. Conclusion Both full-size and small organizations should note the main purpose of the agreement is to determine the contract that the people or organizations involved have constructed and to provide solutions their justices and responsibilities according to the agreement made. All organizations should identify the most suitable contract that fits the needs of their production. A small organization should always look forward into using fixed cost agreement. On the other hand, big organizations like the Boeing companies should consider using the cost-reimbursement agreements. References Berends, T. C. (2000). Cost plus incentive fee contracting and Atilde; experiences and structuring. International Journal of Project Management, 18, 165-71. Garner, B. A., (2009). Black’s Law Dictionary. St. Paul, MN: West Group. Stanberry, S. A. (2012). Federal contracting made easy (4th ed.). Vienna, VA: Management Concepts. Steadman, T. (2006) Cost-Plus Guaranteed Maximum Price Contracts. 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