What Are the Four Types of Contracts
The types of construction contracts are usually defined by the type of payment made and other specific conditions such as duration, quality, specifications and certain other elements are indicated. These main types of contracts can have many variations and can be tailored to the specific requirements of the product or project. (3) Procurement Cost Plan. All contracts providing for procurement costs shall be supported by a procurement cost plan setting out the procedures for assessing the award fee and by a procurement costs committee for carrying out the assessment of the award fee. Additional Fee Plans – Unit price contracts are commonly referred to as hourly rate contracts. This type of combined contract: Express contracts are often known as the opposite of an implied contract, which, as a reminder, initiates an agreement based on the actions of the parties involved. In express contracts, all the terms, conditions and details of the agreement are expressed (do you understand it?) by writing them, saying them aloud, or both. For example, a time and hardware contract works well for software developers who have been hired to create an application for a company that is not sure what the application should do. Developers calculate the time spent programming, designing, and testing the application, as well as any additional iteration required to complete the product.
They submit their receipts and records of hours of work at fixed intervals, as specified in the contract, to receive payment. When maneuvering your contract management strategy for your business, it`s important to select all the types you might encounter to maximize contract performance, preparation, organization, and compliance. (1) The contract agent shall insert in a contract by negotiation a clause which, in essence, together with clause 52.216-4, Economic Adjustment of Prices – Labour and Equipment, or a clause prescribed by the Agency as approved in paragraph (c) (2) of this Section, insert in applications and contracts if all of the following conditions apply: costs plus contracts are used, if the scope has not been clearly defined and it is the responsibility of the owner to set limits on the amount that the contractor will charge. When some of the above options are used, these incentives serve to protect the interests of the owner and avoid unnecessary changes. Be aware that cost-plus contracts are difficult or more difficult to track and that increased monitoring is required, usually low risk to the contractor. (a) the types of fixed-price contracts provide for a fixed price or, where appropriate, an adjustable price; Fixed-price contracts that provide for an adjustable price may include a maximum price, a target price (including target costs), or both. Unless otherwise specified in the contract, the maximum price or target price may only be adjusted on the basis of contractual clauses that provide for an appropriate adjustment or other modification of the contract price in the circumstances indicated. The principal shall use fixed prices or fixed prices with economic price adjustment agreements for the purchase of commercial goods, in so far as this is provided for in point (b) of 12 207. (a) incentive contracts within the meaning of this Subsection are appropriate where a fixed-price contract is not appropriate and the necessary supplies or services can be purchased at a lower cost and, in some cases, with improved technical supply or performance, by linking the amount of profit or royalty payable under the contract to the performance of the contractor. Incentive contracts aim to achieve specific acquisition objectives by (b) forcing trade-off decisions between incentive areas that are consistent with the government`s overall acquisition targets.
Due to the interdependence of government costs, technical performance, and delivery targets, a contract that focuses on only one of the objectives can compromise control over the others. Since exceptional results may not be achievable for each of the incentive areas, all multi-incentive contracts must include a cost incentive (or limitation) that excludes a contractor`s reward for superior technical performance or superior delivery results if the cost of those results outweighs their value to the government. (a) Description. A fixed-price incentive contract is a fixed-price contract that provides for the adjustment of the profit and the determination of the final price of the contract by applying a formula based on the ratio between the total final costs negotiated and the total target costs. The final price is subject to a price cap, which is negotiated at the beginning. The two forms of fixed-price incentive contracts, fixed objectives and successive objectives, are described in paragraphs 16 403-1 and 16 403-2 below. Membership contracts must be submitted as to take or let go. Because if a party has more bargaining power in another situation, it could potentially be considered an unscrupulous contract.
It`s easy for this line to be blurred, leading to membership contracts being reviewed frequently. Some common types of contracts are used in the engineering and construction industries: with fixed-price contracts, buyers know the exact cost of the project from the beginning, which many people consider a great advantage. Fixed-price contracts entail minimal risk for buyers. While buyers sometimes make a lump sum payment at the beginning of the project, the seller assumes most of the risk, as the buyer often only pays after the work is completed. The type of contract used in an agreement may relate to the structure of the document, the details of the indemnification, the legally enforceable requirements, or the risks involved. Not all contracts listed below are comparable and not all can be used interchangeably. (D) Consider measures envisaged to minimize the use of contracts other than fixed-term contracts in future government procurement for the same needs and to move to fixed-price procurement to the extent possible. An express contract is a category of complete contracts. In these types of agreements, the exchange of promises implies that both parties agree to be bound by the terms of the contract, orally, in writing or by a combination of both.
All express contracts must contain the six basic elements of a contract for it to be legally binding and enforceable: time and material contracts are usually preferred if the scope of the project is unclear or has not been defined. The owner and contractor must set an agreed hourly or daily rate, including any additional costs that may arise in the construction process. The two basic categories of incentive contracts are 16,301 General. 16.301-1 Description. The types of reimbursement of contracts provide for the payment of reimbursable costs incurred to the extent provided for in the contract. Such contracts shall specify an estimate of the total cost for the purposes of the commitment and the setting of a ceiling which the contractor may not exceed (except at its own risk) without the consent of the procuring entity. 16.301-2 Application. (a) The procuring entity may use reimbursement contracts only if, (1), circumstances do not allow the Agency to define its requirements to such an extent that a fixed-price procurement is possible (see 7.105); or (2) uncertainties related to the performance of the Contract do not allow the cost to be estimated with sufficient accuracy to use any type of fixed-price contract. (b) The procuring entity shall document the justification for the choice of the type of procurement in the written procurement plan and shall ensure that the procurement plan is approved and signed at least one level above the procuring entity (see 7.103 letters (j) and 7.105). 16.301-3 Restrictions. (a) A reimbursement contract may only be used if (1) the factors of 16,104 have been taken into account; (2) A written acquisition plan has been approved and signed at least one level above the procuring entity; 3. The contractor`s accounting system is appropriate to determine the costs applicable to the contract or contract; and (4) Prior to the award of the contract or contract, reasonable government resources are available to award and administer a contract other than a fixed price (see 7.104(e)).
This includes appropriate government oversight during implementation in accordance with section 1.602-2 to provide reasonable assurance that effective methods and cost controls are applied. (b) The use of reimbursement contracts for the acquisition of commercial property is prohibited (see parts 2 and 12). 16,302 cost contracts. (a) Description. A cost contract is a cost reimbursement contract in which the contractor receives no remuneration. (b) enforcement. A cost contract may be suitable for research and development work, in particular with non-profit educational institutions or other non-profit organisations. (c) restrictions.
See 16.301-3 16.303 cost-sharing contracts. (a) Description. A cost-sharing contract is a cost-reimbursement contract in which the contractor receives no royalties and is only reimbursed for an agreed portion of its attributable costs. (b) enforcement. A cost-sharing agreement may be used if the contractor agrees to assume a portion of the costs in anticipation of significant offsetting benefits. (c) restrictions. See 16.301-3 16.304 Cost-plus-Incentive-Fees-Contracts. A cost-plus-cost incentive fee contract is a reimbursement contract that provides that an originally negotiated fee is then adjusted using a formula based on the ratio of total eligible costs to total target cost. Cost-plus incentive contracts are referred to in subsection 16.4, Incentive Contracts. See 16.405-1 for a more complete description and discussion of the application of these treaties. See 16.301-3 for restrictions.
16,305 contracts with award costs plus cost-price. A fee contract at award cost is a reimbursement contract that provides for fees consisting of (a) a basic amount (which may be zero) determined at the beginning of the contract and (b) a surtax amount based on a government assessment and sufficient to establish excellent performance of the contract […].