Cost-reimbursable contracts , Project Management

Assignment Help:

Cost-reimbursable contracts 

In cost-reimbursable contracts you pay the contractor the costs necessarily incurred in the construction plus a fee. The latter portion viz. the fee can be fixed in a number of ways which we will discuss later in this section. The main reasons for adopting this mode of contracting are: 

  • At the time of contracting, the scope of the work is indeterminate or highly uncertain and the kind of labour, material and equipment needed are also uncertain. 
  • At the time of contracting, you are unable to finalise the plans and specifications for the project.  
  • At the time of contracting, you are not certain whether the construction project will be completed in full. 
  • Cost-reimbursable contracts offer an easy response to unexpected conditions arising during project implementation. 
  • Under this arrangement complete records of all time and materials spent by the contractor must be maintained. (These types of contracts are also called Time and Material contracts or Cost-plus contracts). Evidently the  risk of cost increase in the project depends entirely upon you. 

The most important question that should be resolved for finalising cost-reimbursable contracts is to identify the following costs: 

  • Reimbursable costs (costs that are reimbursable to contractor that is. costs that are necessarily incurred in the performance of the work). 
  • Non-reimbursable costs (costs that are not reimbursable to contractor). 
  • Costs that are included in the base figure which is agreed as the basis for determining the fee. 

Typically these costs comprise the following elements: 

  • Reimbursable costs (that is. costs that are necessarily incurred in the performance of the work), which includes: 

 

  1. Wages, payroll taxes and fringe benefits. 
  2. Cost of all materials, supplies and equipment including the costs of transportation, unloading thereof. 
  3. Payments to subcontractors. 
  4. Rental and maintenance charges for all equipment, trucks and hand tools. 
  5. Cost of salaries of all contractor?s staff stationed at the field office. 
  6. Cost of salaries of contractor?s staff utilised for expediting of supplies, supervising of transportation and so on calculated for time specifically spent on the project. 
  7. Cost of travel and travel incidentals of contractor?s staff directly incurred on the project. 
  8. Premiums of all bonds and insurances incurred by contractor for the work. 
  9. Permit fees. 
  10. Cost incurred for communication that is, telephone, electronic communication and so on and for stationery at site. 
  11. Cost of temporary site facilities like removal of debris. 
  12. Losses and expenses not compensated by insurance which result from causes other than the fault or negligence of the contractor. 

Non-reimbursable costs which includes:

  1. Salaries or other compensation for the contractor?s officers and employees while working at the contractor?s main office or branch offices. 
  2. Expenses of the contractor?s principal or branch offices other than the field office. 
  3. Any capital expenses including interest on the contractor?s capital and any additional capital required to perform the work. 
  4. All general overhead expenses.

Costs due to negligence of the contractor, subcontractors, or anyone directly employed by the contractor. While the above list is typical, there can be some variations to the list depending on the agreement between owner and contractor. But the contract should make these costs clear in order to avoid disputes.   


Related Discussions:- Cost-reimbursable contracts

Benefits from quality efforts, Benefits from Quality Efforts The benefi...

Benefits from Quality Efforts The benefit obtained from quality is creation of more efficient and effective operations. It helps to increase the customer satisfaction and their

Risk management enhancement , Risk management enhancement  There is sco...

Risk management enhancement  There is scope for risk management scenario and the following are some of the methods suggested:   Bringing increased awareness of risks:  Imp

Take the company to the next stage of its growth, The Board of PCC Company,...

The Board of PCC Company, which operates in the investment and risk management industry, has explained that in order to 'take the company to the next stage of its growth' there wil

Factors affecting process design - nature of product, Factors affecting Pro...

Factors affecting Process Design - Nature of Product The operations management has to design the production systems to produce products/ service of the kind that customers wan

What are the key stages to risk management, Question 1: You have been r...

Question 1: You have been requested by top management to develop projects for enhancing the effectiveness of human resources within your company. Write down a proposal in resp

Explain the different methods for monitoring the project, Question: (a)...

Question: (a) The purpose of Project Monitoring and Control is to evaluate and provide an understanding of the evolution and progress of a project. This enables measurement of

Execution of the enterprise resource planning (erp) system, At the last boa...

At the last board meeting of X Company, the Finance Director showed concern for the lack of planning information obtainable to the company. It was accepted that the company needed

Different between work and cost breakdown structure, What are the different...

What are the different between Work and Cost breakdown structure? Different between Work and Cost breakdown structure: Work breakdown structure produces a detailed list of e

What is project scheduling, Question 1 Briefly explain various activities ...

Question 1 Briefly explain various activities involved in project management Question 2 What is COCOMO? Write necessary steps for cost estimation Question 3 What is proj

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd