Most risk to buyer
Submitted by elthox on Sat, 07/06/2013 - 18:03
Hi,
Which of the following contracts has the most risk for the buyer?
A. CPFF
B. T&M
C .CPAF
D. FP
I chose CPFF but according to HeadFirst it is B) T&M
As I`m aware the buyer`s risk decreases in this order: CPPC - CPFF CPAF CPIF T&M FP
So whats the trick behind this answer?
Thank you
Elthox
Forums:
vijayavadrevu
Mon, 07/08/2013 - 10:34
Permalink
Please refer to
Please refer to
http://pmi.books24x7.com/assetviewer.aspx?bookid=41937&chunkid=536184495...
A13. Conceptually, time and materials (T&M) contracts are similar to cost-plus contracts—here again, the buyer is paying the seller's costs at an agreed-upon rate for the seller's time, plus the seller's costs for materials. T&M is very useful for smaller projects and for contracts in certain industries, such as construction, in which projects may be fairly standard, so more complicated contract types are not necessary. T&M is also a popular choice whenever both parties prefer a quick contract to save resources.
Like cost-plus contracts, T&M contracts inherently hold more risk for the buyer because the units of time and materials are not strictly specified, and so they are open-ended, which is a disincentive for the seller to hurry. Buyers would generally try to avoid T&M contracts, but in many cases getting a contract finalized quickly and signed outweighs the risk of entering an open-ended agreement.
I think this might clarify your doubt
humanbeing2001
Mon, 07/08/2013 - 13:08
Permalink
CPFF is the Right Answer.
CPFF is the Right Answer.