Considering Project Procurement and responding in narative f

Considering Project Procurement and responding in narative form....

Why is it more difficult to get fixed price contractors to complete their contract work, as compared to reimbursable contractors?

What can be done to induce fixed price contractors to become more responsive?

What other types of strategies can be employed to induce contractors to finish the work on time?

Solution

The fixed price contract keeps the fixed fee for the effort to be carried by the contractor. For example, if the fees is $5,000, the contractor should complete all his efforts before it exceeds the contract amount. For some reason or delays, if this cost increases then the contractor is at the verge of loosing money. Else the contractor makes more fee than projected. Hence, due to this the risk comes on the contractor through the contract. In case the work is done effortlessly by understanding the scope then this may lead to a good contract. In case, if the scope of the project or work is not demarcated then it is risk to the contractor to go for the fixed price bid and the seller will also be cautious. For fixed price contracts it is better to add incentives or rewards (e.g. faster delivery or good performance) against the agreed terms. Hence, it is good to motivate the contractor through may be by advancing the payments or giving extra bonus. But it is always risky to add any kind of incentive as the risk has taken willingly by paying more or in case, if the work is lagging as expected so the penalty can be added for any lesser quality of work. Good contractors look for cost reimbursable type of contract when any work is to be done for R&D type of project where scope of the work is not known. Incentives can be added to this type of contracts. This helps is reducing the risk from the buyer’s standpoint by motivating the contractor. Hence, these types of contracts can be written with the combination of cost plus fixed price and incentive fee.