CONTRACT COST CONSIDERATIONS Research Paper Example | Topics and Well Written Essays - 1250 words

CONTRACT COST CONSIDERATIONS - Research Paper Example The three are firm-fixed price, cost-plus-fixed fee and cost-plus-incentive fee. Therefore, this paper will look at the advantages and disadvantages of these three contract pricing systems before outlining and discussing them in a specific NAICS case-study. Firms seeking contracts in different spheres of operations as classified by NAICS adopt different contracting or pricing schemes that are in line with their needs and capabilities and also by putting into considerations the needs of clients. In this way, it can be deduced that numerous factors, either in single or in multiple, influence the selection of the appropriate and most efficient pricing mechanisms in contract projects. However, in adopting an appropriate contract mechanism to employ, firms are always advised to take into account the responsibility of certain and specific risks that the projects might have. Three major contract pricing systems are used by contracting firms. The three include fixed price system, cost-plus-fixed-fee, and cost-plus-incentive fee. Therefore, discussion in this research paper will involve looking at the three contract pricing systems in terms of advantages and disadvantages and how they apply to a specific NAICS firm. The first contract pricing mechanism is the firm-fixed-price contract. This type of contract provides a price that in most cases is not subject to any change or adjustment (Stewart, Wyskida and Johannes, 1995). Favor for this type of contract has usually been based on the contractor’s experience in performing the contract. This type of contract provides maximum incentive for the contractor to have control over the costs and also be able to perform effectively. In such arrangement, there is always minimization of administrative burden on both the contracting parties. It has been found firm-fixed-price (FFP) contract is most favored by contractors keen on