Special topics 2020

Abd Al Rahman Qasaymeh

ID: 8191007

HW #3
1. Scan todays newspaper and discuss any “RFP” or RFQ”? Need to attach the advertisement and
discuss the main requirements in your own words.
In this advertisement the municipality share an RFP in order to establish a conference room, the
municipality determine the duration of the project to be 60 days with a delay penalty. A bond of 3% is
required and it must be valid for 90 days.

The municipality also determine deadlines for job site visits and offer submission, and it has the
authority to cancel the tender at any time.

2. Discuss the major elements that affect a contract selection for a specific business?
- Scope definition: if the scope is very well defined the best choice is to select FP type, but if the
scope has unclear definition we may go for the cost-plus or target cost contracts. And if the
scope is clearly defined but is vary in quantity the best choice will be time and material contract.
- Project duration: if we have a short delivery time then the time material well be our selected
type but if we have a long duration then target-cost contract will be the choice
- Complexity: if the project has a complex interface then it is not preferred to choose FP
contracts.
- Budget: the budget is very important element in the project, if the owner has a fixed budget
then he can go for the fixed price contract
-

3. What are the different types of contracts available to the Owner?

- Fixed-price contracts. This category of contracts involves setting a fixed total price for a
defined product, service, or result to be provided. These contracts should be used when
the requirements are well defined and no significant changes to the scope are expected.
(in this type the seller has more risk)

4. Give two examples for each contact type.

Scenario I – Fixed Price

Let us assume we called a Building Architect before calling the Electrical Contractor. The Architect
provided us with complete Electrical Layout & Design. The Architect also gave us Material
Specifications of the Wiring to be used. In brief we finalized everything before the Contractor
walked in. We prepared a detailed Statement of Work for the Contractor. The contractor would
study the detailed Statement of Work (finalized designs and material specifications) to provide a
Fixed Cost Estimate.

1. HR Cost – The contractor would look at the whole house and architectural design
to estimate how many Labor units (duration & effort) would be required to
complete the work.
2. Material Cost – The contractor would survey the house and study the Electrical
Layout & Design to make an approximation of how much Wire (quantity of wire)
would be required.
Based on above two estimates, the Contractor can estimate Cost of Labor and Cost of Wire. The
Contractor would total these Estimates and add some profit to provide us with a Fixed Price
Quotation. This Quotation (once finalized and accepted by us) would become part of the Contract.
We will have to pay a Fixed Price to the Contractor for completing the work. Even if the Contractor
overruns his estimates, we would not be liable to pay anything extra.

Salient Features of FP Contracts

1. In FP Contracts Scope is well defined and Price is Fixed.

2. FP Contracts could run into losses for the Seller if the costs are not managed well.
FP Contracts are more risky for Sellers.
Scenario II – Time & Material

This scenario would come if Electrical layout & design was not available with us. We will not be
able to provide a detailed Statement of Work to the Contractor. The Contractor would have to
prepare the Quotation without a detailed Statement of Work.

1. HR Cost – Since the Electrical Layout & Design are not available, the Contractor
would not be able to estimate how much Labor units (duration & effort) would be
required to complete the work. The Contractor can, however, estimate the Labor
Rate per Day (or any other unit of time e.g. hour or week).
2. Material Cost – Again the Contractor would not be able to estimate the quantity of
wire that would be required to complete the work. The Contractor can, however,
estimate the Rate per Meter (or any other unit of quantity e.g. Kg) for different
types of wires required.
The contractor would add a suitable margin to estimated Labor Rate & Wire Rate for re-wiring the
house. The Contractor would provide top-up Rates to us as a Rate Quotation. These Rates (once
finalized and accepted by us) would become part the Contract. These Rates will remain Fixed for
the duration of the Contract. We will have to pay the Fixed Rate to the Contractor for completing
the work. The actual quantity of Labor and Material consumed will be used for making final
payments.

Salient Features of T&M Contracts

 1. In T&M Contracts Quantity is not defined and Rate is Fixed.
2. In T&M Contracts both Buyer and Seller can overrun their estimated Cost targets.
T&M Contracts are risky for both Buyers and Sellers.
Scenario III – Cost Reimbursable or Cost Plus

This scenario is similar to Scenario II above. This scenario would come if Electrical layout & design
was not available with us. We will not be able to provide a detailed Statement of Work to the
Contractor. The Contractor would have to prepare the Quotation without a detailed Statement of
Work.

In addition, let us assume that Market (Economic) Conditions are constantly changing. There is a
constant fluctuation of Labor Rates and Wire Rates in the market. In these conditions, the
Contractor cannot reasonably estimate a Fixed Rates.

In this Scenario, the Contractor would propose (since Labor Rate & wire Rate cannot be fairly
estimated) that the Actual Costs incurred by her/him should be Reimbursed. In addition, the
Contractor, would ask for a Suitable Fee for the services that she/he would render to complete
the work. This proposal (once finalized and accepted by us) would become part the Contract.
Neither the Rates nor the Quantity would be Fixed for the duration of the Contract. A Service Level
Agreement, however, can be defined as part of the Contract. We will have to Reimburse all
legitimate Costs and give a Suitable (Agreed upon) Fee to the Contractor.