fixed price contract vs cost reimbursable contract vs time and material contract | Difference between fixed price contract, cost reimbursable contract, time and material contract
This page compares fixed price contact vs cost reimbursable contract vs time and material contract and mentions difference between fixed price contract,cost reimbursable contract and time and material contract.
fixed price contract
The fixed price contract is the most common type. In this one price is agreed between the buyer and seller for all the project work. In this FP contact, buyer will have least amount of cost risk once they have well defined scope.
Following are the types of fixed price contract:
• Firm Fixed Price(FFP) as described
• Fixed Price Plus Incentive Free(FPIF)
cost reimbursable contract
In cost reimbursable contract seller's costs are reimbursed in addition to some extra amount. In this type, buyer bears most of the cost risk as total project costs are not known. This type of contract is used when buyer specifies what exactly is needed. Based on this seller will write detailed contract SoW.
Following are the types of cost reimbursable contract:
• CR contract as described
• CPFF(Cost Plus Fixed Fee)
• CPAF(Cost Plus Award Fee)
• CPIF(Cost Plus Incentive Fee)
time and material contract
This time and material contract is used for small amount projects. In this type, contract is priced on hourly basis or item basis. This T&M contract utilizes both FP and CR contract.
Here, buyer will have medium cost risk compare to CR and FP contracts.
Following table mentions major difference between these contract types.
| Contract Type | Known Scope | Share of Risk | Incentive for meeting milestones | Predictability of cost |
|---|---|---|---|---|
| Fixed total cost | Very High | All contractor | Low | Very high |
| Fixed unit price | High | Mostly project | Low | High |
| fixed price with incentive fee | High | Mostly project | High | Medium-High |
| fixed fee with price adjustment | High | Mostly project | Low | Medium |
| CR with fixed Fee | Medium | Mostly project | Low | Medium High |
| CR with Percentage Fee | Medium | Mostly project | Low | Medium High |
| CR with incentive fee | Medium | Mostly project | High | Medium |
| CR with Award fee | Medium | Mostly project | High | Medium |
| Time and Material | Low | All Project | Low | Low |
Useful PMP Related Links
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