What are the risks to buyers associated with fixed price contracts?
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Recommended textbooks for you Purchasing and Supply Chain Management ISBN:9781285869681 Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson Publisher:Cengage Learning Purchasing and Supply Chain Management ISBN:9781285869681 Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson Publisher:Cengage Learning What are the risks of a fixedFixed-price contracts also may represent less of an administrative burden to clients. Put another way, fixed-price contracts involve greater financial risk to the supplier, as you bear the full impact of any costs that may exceed your budget estimates and price.
Which contract has the most risk for the buyer?Cost Plus Fixed Fee (CPFF) presents the most risk for the buyer. There is less incentive for the seller to keep control of costs than with a fixed-price contract and the buyer would need to provide resources to oversee the costs to make sure they are reasonable.
What are the pros and cons of fixed prices?Fixed price contracts pros and cons. Finalized cost, low financial risk. ... . Fixed deadline. ... . Easy-to-follow development schedule. ... . No management needed from the client. ... . Long planning phase. ... . Inflexible process. ... . Not suitable for complex projects. ... . Miscommunication risks.. Who has the cost risk in a fixedFixed Price Contracts Fixed price (FP)
Therefore, the seller bears a higher burden of the cost risk than the buyer. There are 3 types of contracts in this category: a) Firm Fixed Price (FFP) means that buyer will going to pay one amount regardless of how much it costs the contractor to do the work.
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