Question

In: Operations Management

A certain project is being negotiated between a buyer and aseller. The project is a...

A certain project is being negotiated between a buyer and a seller. The project is a research project that has unknown deliverables. The buyer and seller are discussing the type of contract that should be agreed (fixed price or cost reimbursable). The buyer wants the seller to engage in a fixed price contract.

What should the seller do? Why?

A certain project operating under a CPIF contract has been negotiated and formally agreed-upon between a buyer and a seller. The following information has been included in the contract: T

arget Price: $223,096 Target Cost: $215,000 Target Fee: $8,000 Buyer's Share Ratio: 0.70 Seller's Share Ratio: 0.30

The project has finished and the actual cost that the seller incurred was $207,643.

What incentive fee does the buyer pay the seller?

What is the total contract price (i.e., what the buyer has to pay the seller in total)?

Expert Solution

The incentive fee paid by the buyer to the seller is?

(Target price – Target cost) + (Target cost – incurred cost)

($223,096 - $215,000) + ($215,000 - $207,643)

$8096 + $7357 = $15,453.

Buyer’s share ratio 0.70 *$15,453 = $10817.10

Seller’s share ratio 0.30 * $15,453 = $4635.90

The total contract price is?

Incurred cost + Target fee + Incentive fee

$207,643 + $8000 + $4635.90 = $220,278.90

keosha answered 2 years ago

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