Question

Part 5: CLO 5

Question 1

David, the project manager, is now working on procurement planning for the project. He is looking at the following options for procuring different pieces. Advice the right procurement contract option for the following situation (justify your answer):

1. David will pay $3,000 for the use of a facility and $5,000 per month for the consulting team and engineering, working on the acquired part for the duration of the project. However, there is a limit of $50,000 for the maximum cost.
2. David will pay the labor cost each month plus 5% of this cost as food at work and for recognition and rewards for the labor.

Answer 1

We will have to approach this problem as being constrained by the maximum project cost which has been given as $50,000.

Out of this $3,000 needs to be earmarked for the use of the facility which is a one-time project cost.

Labor cost is $5,000 per month (consulting/engineering) plus 5% (Rewards and Recognition). i.e 5% of 5000 = $250 per month. Hence total monthly costs are 5000+250 = $5,250 per month. Assuming that the maximum costs for the project is $50,000 with an initial one-time cost of $3,000 for facility usage, this leaves us with 50,000 - 3,000 = $47,000 for the recussing costs of the project.

This implies that David can plan for a maximum of 47,000/5,250 (greatest integer of this division) = 8.95 , i.e. about 8 months. The contract period should be 8 months maximum and timelines need to be developed working backwords from this.

[Note that this is the only possible interpretation given the details in the question]