"The following is a list of the basics of the various contractual arrangements available in order toassist in your decision-making process.GUARANTEED MAXIMUM PRICEA guaranteed maximum price (GMP) contract is a cost-type contract, in which the constructioncontractor is compensated for actual costs incurred, plus a fixed fee subject to a ceiling price.The contractor is responsible for cost overruns, unless the GMP has been increased via formalchange order as a result of additional scope from the client. Savings resulting from costunderruns are returned to the client.LUMP SUMThe contractor agrees to build a project with a specific scope for a fixed price. A lump-sumcontract is suitable if the scope and schedule of the project are sufficiently defined to allow thecontractor to fully estimate project costs.UNIT PRICEThis kind of contract is based on estimated quantities of items included in the project and theirunit prices. The final price of the project is dependent on the quantities needed to carry out thework. In general, this contract is only suitable for projects in which the scope is reasonably wellestablished, and the different types of items (but not their numbers) can be accurately identifiedin the contract documents. COST PLUSCost plus is a contract agreement wherein the purchaser agrees to pay the cost of the work,including all trade contractor work, labor, materials, and equipment, plus an amount for contractor overhead and profit. These types of contracts are favored where the scope of work isindeterminate or highly uncertain, and the kinds of labor, material, and equipment needed arealso uncertain.COST-REIMBURSABLE ALTERNATIVEWith cost-reimbursable alternative contracts, contractors are paid for the work with a mix ofreimbursable and fixed or incentive costs. Cost-reimbursable alternative contracts are effectivewhen the general scope of work and schedule are defined, but there is uncertainty in quantities orexecution. Under cost-reimbursable alternative contracts, uncertainty in project scope is borne bythe client. Cost-reimbursable alternative contracts offer significant flexibility for responding toconditions that are uncertain. There are different variations of basic cost-reimbursable alternativecontracts, including cost-reimbursable plus fixed fee, cost-reimbursable plus performance-basedincentives, direct cost-reimbursable plus fixed construction management costs, and others.INTEGRATED PROJECT DELIVERY/ALLIANCEIntegrated Project Delivery (IPD) contracts, or ?Alliance? contracts, represent the latest trendtowards a more collaborative approach to delivering construction projects. IPD contracts areunique in that they require the involvement of owners, designers, builders, and key stakeholderson a project as early as possible— sometimes even at the conceptual stage. This contract typeresults in more transparency among all the parties involved on a construction project.Additionally, both risk and reward are shared by the parties who enter into the IPD contract,resulting in greater integration of resources, processes, and expertise than would be possibleunder more traditional contract arrangements. Describe Competitive Bidding, its Advantages and DisadvantagesAns. 9 Transparent procurement method in which bids from competing contractors, suppliers, orvendors are invited by openly advertising the scope, specifications, and terms and conditions ofthe proposed contract as well as the criteria by which the bids will be evaluated. Competitivebidding aims at obtaining goods and services at the lowest prices by stimulating competition, andby preventing favoritism. In(1) Open Competitive Bidding (also called open bidding), the sealedbids are opened in full view of all who may wish to witness the bid opening; (2) ClosedCompetitive Bidding(also called closed bidding), the sealed bids are opened in presence only ofauthorized personnel.Competitive bidding is a widely used procurement method within government agencies andprivate sector organizations. The idea behind competitive Bidding is that it forces suppliers tocompete and (so the theory goes) consequently the purchaser and taxpayer will gainbetter "value for money". Competitive Bidding involves a purchasing organization advertising itsinterest to acquire services or supplies and requests tenders to respond and to compete for theopportunity to win the business. In some countries the tendering/bidding process is mandatorilyused in some government organizations for purchases over predetermined dollar values.The Advantages of Competitive BiddingCost EffectivenessBy selecting audit firms through competitive bidding, companies can control the costs associatedwith the audit process. Audit firms usually quote an initial amount, which might increase if theauditors later discover financial issues that need greater investigation. However, since competingfor a tender requires auditing firms to state the scope of work and bid a specific amount in relation to the whole contract, with an incentive to go low in order to win the work, this mode ofselection is particularly beneficial to the company.The Disadvantages of Competitive BiddingDisadvantage #1: Leading suppliers may not tenderIn Australia, for example, government procurement guidelines only allow suppliers who actuallytender to be considered for a procurement decision. If the leading supplier or suppliers do nottender, the purchaser can only consider bids from suppliers who do tender. If leading suppliersare not considered, the purchaser may end up buying inferior product or service. An example isreported in this news link in which a key, potential supplier decided not to tender a bid becauseof the costs and the terms/conditions for the contract were onerous.Disadvantage #2: Barriers to communication between supplier and customersWhen making significant purchases, frank and open communication between potential supplierand customer is crucial. Competitive tendering is not conducive to open communication; in fact,it often discourages deep dialogue because in many cases all discussions between a bidder andthe purchaser must be made available to all other bidders. Hence, Bidder A may avoid askingcertain questions because the questions or answers may help other bidders by revealing BidderA‘s approaches, features, and the like.Disadvantage #3: The cost-plus phenomenonDr. Deming writes in Out of the Crisis, "There is a bear-trap in the purchase of goods andservices on the basis of price tag that people don‘t talk about.To run the game of cost plus in industry a supplier offers a bid so low that he is almost sure toget the business. He gets it. The customer discovers that an engineering change is vital. The "