Research Paper on "Evaluating Contracts"

Research Paper 5 pages (1509 words) Sources: 5

[EXCERPT] . . . .

Contracts

Different Types of Contracts Analysis

Fixed price contracts advantages and disadvantages for contractors

Fixed price contracts are represented by contracts where the amount of payment does not depend on the amount of resources. This type of contracts usually takes place between contractors and the government. In such cases, the risk is supported by the vendor. The government has the ability to control the costs. Fixed price contracts are preferred in the case of businesses that focus on innovative technologies. This is because the little information on such technologies usually determines increased costs.

There are several advantages determined by fixed price contracts from the perspective of contractors (Symes, 2012). Such contracts allow the contractor to benefit from a higher level of stability in comparison with other types of contracts. Therefore, if the value of the products and services provided by the seller is reduced by certain factors, the fixed price of the contract ensures that the revenues of the contractor are not reduced. This allows companies to make estimations about investments that are required by their activity. This is also allows the contractor to establish a higher price for the products addressed by the contract in order to be in accordance with the risk level associated with the contract in case.

There are also certain disadvantages of fixed price contracts from the perspective of the contractor. The risk of the contract is addressed by the contractor in the case of this type of contracts. In addition to this, certain environmental factors can determine the prices of the materials and supplies required by producing the products addressed by the contract to significantly increase. This leads to increased production costs that affect the contractor.

In case the costs of the products and services addressed by the fixed contract increase, it is possible that the buyer cannot pay the sum of money established by the contract. In such cases, the contractor must pay the production of these products and services, while the revenues are reduced. Therefore, it is important to identify the environmental factors that are likely to affect the costs of these products when establishing the fixed term contract.

Cost reimbursement contracts advantages and disadvantages for the government

Cost reimbursement contracts have different advantages and disadvantages. This type of contract allows the contractor to be paid the established expenses to a set limit, and additional payments in order to have profits. The advantage of cost reimbursement contracts from the perspective of the government is that contractors are not encouraged to reduce the quality of their work in order to make profits. In other words, it helps increase the quality of the products and services addressed by the contract (Philpott & Cook, 2012). The quality issue is important in activities like defense, military, and others. Therefore, it is important to have higher quality at higher costs in comparison to reduced quality determined by smaller investments in such activities.

Another important advantage of cost reimbursement contracts refers to the fact that in such cases the costs can be smaller in comparison with the costs determined by fixed price contracts. This is because the risk levels are reduced in the case of the contractor. Therefore, the contractor does not need to increase the prices in accordance with the establish risks.

There are also certain disadvantages of cost reimbursement contracts from the perspective of the government. In such cases it is difficult to estimate the costs of the contract. This type of contracts also requires increased control in order to ensure that only permissible costs are paid. Another disadvantage is represented by the fact that contractors have reduced level of motivation on efficiency in comparison with fixed price contracts. The level of administration required by cost reimbursement contracts is higher in comparison with other types of contracts. This is because increased efforts are necessary in order to ensure that the contractor is properly controlling costs. In addition to this, it is necessary to provide incentive fees to contractors.

Elements of cost reimbursement contracts that can determine important problems of contractors

There are several elements of the cost reimbursement contracts that can determine important disadvantages for contractors. In such cases, contractors are determined to increase their efforts in satisfying the needs of the buyer. The risks associated with this type of contracts are lower in comparison with the risk levels determined by fixed price contracts, but the contractor has reduced control on the contract.

Another element of the cost reimbursement contract that can determine difficulties in the case of the contractor refers to the consideration associated with the contract. This consideration can be represented by currency. The variations of currencies represent important factors that are likely to significantly affect companies' activity. In the case of companies doing business on international level, it is difficult to develop contracts on different currencies that are influenced by environmental factors.

The currency variations can lead to increased profits in the case of these companies, but they can also lead to reduced incomes in accordance with the sum of money established by the contract. In certain situations, the prices of supplies required by the production can reduce, leading to reduced costs of the contract. But the currency modification after establishing the value of the contract can affect the profits of the contractor.

Agreements

There are also other types of contracts, like agreements. These agreements can be basic agreements, or basic ordering agreements. In the case of basic agreements, the contract is negotiated between an agency and the contractor. These agreements refer to contract clauses that must be applied to contracts developed between the agency and the contractor regarding the production of the different products and services required by the buyer. In addition to this, such agreements refer to contracts that the buyer and the contractor are likely to address.

Basic ordering agreements refer to the fact that the contract is negotiated between an agency and the contractor, same as in the case of basic agreements. In addition to the clauses that must be applied to contracts between the parties involved, basic ordering agreements also refer to the description of the products and services that the contractor must provide. This type of agreement also establishes the methods of pricing, issuing, and delivering the required orders.

There are several advantages determined by these agreements that can be addressed. The government can benefit from such agreements because of the stability they determine. This stability refers to relationships with suppliers. The efficiency of the government's activity also relies on the supplies necessary for this activity (Business Dictionary, 2012). Therefore, it is important to develop relationships characterized by stability with contractors that can provide the products and services that are necessary to the government.

This also makes it easier to help contractors understand the needs of the government on long periods of time. Another important benefit of agreements between the government and different contractors is that these agreements refer to several contracts under the same agreements. This means that it is not necessary to negotiate each contract when the need for the products or services in case requires it. The contracts' conditions are negotiated when the agreement is developed between the government and the contractors. Therefore, the problems that can be determined by different conditions of the contracts are addressed in the agreement negotiation.

Basic ordering agreements provide other advantages also. Such advantages refer to the fact that these agreements require the description of the products and services purchased by the government, and the methods of pricing, issuing, and delivering orders. This makes it easier to understand the government's needs by the contractors. In addition to this, customer satisfaction level is increased. The fact that the government and the contractors agree on these issues makes it more difficult for contractors to provide products and services… READ MORE

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