Unit rate contracts , Project Management

Assignment Help:

Unit rate contracts 

In a unit-rate contract, the seller commits to providing each unit of work defined by a buyer for a fixed price per unit of each work item.

Engineered materials are procured with unit-rate contracts when the design is not complete. Service contracts can use unit rate pricing provided the scope of work lends itself to the unit-rate approach.  

Unit-rate contracts are appropriate when the units of work can be well defined but the total quantities are uncertain. Certain standard materials that are procured in large quantities are provided under unit-rate contracts.  

This type of contract also requires an accurate definition of when the units of work will be delivered or installed, unless the contract contains an escalation clause. Unit-rate contractors are usually reluctant to increase personnel, overtime and shift work to accelerate the schedule of their work. 

In this scenario, the seller carries the risk of the cost per unit, and you should assume the risk of quantity growth in the number of units.  

Unit prices are fixed for normal duration contracts, but for linger duration contracts (say  2 years or more), contracts usually permit variation due to escalation based on published indices incorporated in an agreed escalation formula. Another reason for variation in unit rates that may be permitted is variation greater than (plus) or (minus) a certain percentage (say + or  - 20%) in the final contract price compared with the estimated grand total contract price. 

You must not view unit rate contracts identical to cost reimbursable type since, in unit rate contract the unit rate for all work items are fixed based on the description of the work and only the quantity is subject to variation.  

Also, when using unit-rate contracts, you should remember that:  

  •   Unit-rate and cost-reimbursable work should not be included in the same contract. 
  •   Unit-rate contracts require an accurate method of reporting completed work units. 

If the scope of a contract is well defined, stable, and the schedule for performing the work is unlikely to change, a fixed-price contract is the best approach. If the units of work can be well defined, but the total quantities are uncertain, a unit-price contract is the best approach.  


Related Discussions:- Unit rate contracts

Managerial function of organizing, Managerial function of organizing Or...

Managerial function of organizing Organizing is the process of grouping activities and resources in a logical and appropriate manner. Because of the changes that take place wit

Factor affecting process planning - choice of plant layout, Factor Affectin...

Factor Affecting Process Planning - Choice of Plant Layout While deciding the sequence of operations the plant layout is to be taken into consideration. The sequence of operat

Briefly discuss features of learning organizations, Question 1: (a) Br...

Question 1: (a) Briefly discuss features of learning organizations. (b) Identify two pitfalls in implementing ‘Citizen's Charters' in public sector organizations. Ques

Checklist to compile a project scope statement, create a risk management pl...

create a risk management plan for all the formulated risks on payroll project

Types of information collected when undertaking competitor, S is enrolled o...

S is enrolled on T Company's management development programme.  Although S has a financial background, the aim of the management development programme is to help him to gain a bett

Internal external factors influence organisational culture, Internal and ex...

Internal and external factors influence the organisational culture Culture facilitates internal integration and harmony as well as external adaptation according to environmental

Elaborate the project communication management processes, Question : (a...

Question : (a) Project communication plan involves the generation and distribution of project documentation among stakeholders and is considered as the driver of the project co

RESEARCH PROJECT, #question:QUESTIONNAIRE ON CUSTOMER ATTITUDE TOWARDS TELE...

#question:QUESTIONNAIRE ON CUSTOMER ATTITUDE TOWARDS TELECOM SERVICES..

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