A close review of contracts can help internal auditors uncover potential fraud and ineffective cost controls. Although contract interpretation is ultimately decided by courts of law, internal auditors who understand contracting concepts, risks, and controls will be less likely to overlook major areas of concern. Contracts may be intimidating, lengthy, and filled with unfamiliar terms, but knowing what to look for when analyzing contracts can make the task much easier for auditors.
These costs might be calculated on a pro-rata basis and charged, along with profits as a pre-agreed lump sumor percentage fee.
In order that the contractor can maintain their cash flowcost reimbursable contracts may also allow them to charge for liabilities, or for costs that will be incurred before the next interim payment.
The client may also monitor activities on site to verify that costs are legitimate for example, checking whether plant that is being charged is actually being used and that costs are not excessive. This can become complex where the contractor is thought to be operating inefficiently or incompetently.
The contractor can be incentivised to operate efficiently by the introduction of a target cost.
Here, a target cost is agreed at the beginning of the project. At the end of the project the actual cost is compared to the target cost taking into account any changes that have been agreed.
If the actual cost is lower than the target costthe savings are shared between the parties to the contract on some pre-agreed basis often a percentage.
If the actual cost is higher than the target costthe additional costs may also be shared. JCT suggest that a prime cost contractcost plus and cost reimbursable contract are in fact the same thing.
Others consider that a prime cost contract is one in which the cost of works packages the prime cost are reimbursed, but the main contractor takes a risk on staffing, overhead costs and profit which might be tendered on a fixed price.A cost-plus-incentive-fee is a method of cost-reimbursement contract that presents an incentive for the contractor to keep the costs of production as low as possible.
Ch 12 - Project Procurement Management. STUDY. PLAY _____ - acquiring goods and services from an outside source cost plus percentage of costs contract. What type of contract is a hybrid of fixed-price and cost-reimbursable contracts?
time and material contracts. Which of the following is true of lump-sum contracts? A. They incur a high. It is not unusual to combine a Unit Price Contract for parts of the project with a Lump Sum Contract or other types of contracts.
Cost Plus Contract A contract agreement wherein the purchaser agrees to pay the cost of all labor and materials plus an amount for contractor overhead and profit (usually as a percentage of the labor and material cost). Within this blog post we will discuss various types of procurement contracts used in project tranceformingnlp.comement management helps you identify a suitable supplier or contractor to procure goods and services.
Procurement management has become a necessity for organizations, everyone must deal with it at some point in their business .
Aug 29, · Lump sum contract – Under this contract type, the engineer or contractor agrees to perform the specified and described project for a fixed price. This type of contract is also referred to as a “Fixed Price Contract” and is very often used in engineering tranceformingnlp.comon: Asheland Avenue, Asheville, , North Carolina.
It is called a lump-sum because the contractor is required to submit a total and global price instead of bidding on individual items. A lump-sum contract is the most recognized agreement form on simple and small projects and projects with a well-defined scope or construction projects where the risk of different site conditions is minimal.