4 ms·
>The alternative to cost plus is? Contracts where the contracting party agrees to a % of responsibility. When the project runs over the profit is reduced by t
by LegitShady 5y ago
>The alternative to cost plus is?
Contracts where the contracting party agrees to a % of responsibility. When the project runs over the profit is reduced by the overrun * the percent responsibility.
Lets say the agreement has 25 million in profit and 40% responsibility. If the project runs over by $2m, the contractor eats $2m * .4 = $800k reduction in profit so now it's $24.2m.
Then they're actually incentivized to not have overruns.
- ChrisLomont 5y ago>Contracts where the contracting party agrees to a % of responsibility. Except no big agency does this because it's a legal nightmare. The others (cost plus and firm fixed) are well explored. >Then they're actually incentivized to not have overruns. Everyone has incentives not to overrun - it means you're less likely to get future work, and future work is worth much more than overrunning current work.
- LegitShady 5y ago>Except no big agency does this because it's a legal nightmare. agencies are starting to do it more and more often. It won't get explored if people are scared, but it will get explored if people actually want to fix the problems with procurement overruns. >Everyone has incentives not to overrun in cost plus your overrun often directly leads to you making more money. So no, not exactly. >it means you're less likely to get future work, and future work is worth much more than overrunning current work. Maybe, maybe not. Lots of things have few competitive bidders, or bidders who bid knowing they're going to make overruns and claims to make the contract profitable when their bid never was. it's often called 'buying the job' in other industries.