T&M vs FFP contract

Submitted by elthox on Sat, 07/06/2013 - 18:08

 A project manager is negitoating with a contractor. Neither has a good idea of how long the project will take, or how much the materials will cost. Which contract type is MOST appropriate for this project?

A. CPFF

B. T&M

C. CPAF

D. FFP

According to Headfirst the right answer is B) T&M

While I reread the question, what impresses me is the PM doesnt know how long project will take. So it might be for a long period and T&M is not appropriate. Also it doesnt mention anything about incomplete scope. So why not to chose FFP?

 

Thank you

Elthox

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vijayavadrevu

Mon, 07/08/2013 - 11:12

The words "how long the project will take" does not mean that it is a long term project.

humanbeing2001

Mon, 07/08/2013 - 13:07

Buyer's Risk has to be subsidised, hence T & M is the best option as FFP can't be appropiate due to the unknown nature of work.

subinoyd

Mon, 07/08/2013 - 22:11

Looks like

1. The PM is the buyer PM

2. does not know about time , hence project can be short duration or long duration. T&M deal recommends where the duration is short or atleast we have an idea how long it will take, which will give an idea to the buyer to assess the expense

3. does not know about cost of material. It does not say whether scope of the project or requirement is unknown, mainly specifies cost of material. Lack of information is a risk to both buyer and contractor. A T&M contract does not seem to mitigate or reduce this risk.

 

Among these Fixed price is supposed to be the contract of least risk to a buyer. So why not FP?

Would appreciate comments from the members.

 

 

lemailme

Tue, 07/09/2013 - 16:55

 Fixed Price is least risk to the buyer when the scope is detailed and known. As neither the seller or buyer know the scope (time, materials), T&M is the best option here for least risk.

 

subinoyd

Wed, 07/10/2013 - 04:25

Hi,

Thanks for the explanation, I was considering scope mainly from the perspective of requirements. But I agree time and material will also play a significant role for the overall scope of the procurement.

bkthakkar

Wed, 07/10/2013 - 11:35

Before using T & M Contract, Project Manager himself has assessed minimum cost to be incurred for certain activity or a service to be acquired which will minimize his risk to all the major or critical activities on its rate part.


Quantities of the Proejct can vary depending on the work involved which will result in minimuzed reduction of risk to all Stakeholders. A fair call to all


Bhavesh

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jvleminc

Mon, 07/15/2013 - 04:30

Look at the risk graph in Rita p. 437. For T&M, both buyer and seller share the risks.