Which of the following contract types is described in the statement below? "This contract type provides no incentive for the contractor to control costs and hence is rarely utilized."
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A. B. C. D.B.
The correct answer is B. Cost Plus Percentage of Cost.
A cost plus percentage of cost contract type is a procurement method in which the contractor is reimbursed for the actual costs incurred during the performance of the contract, plus a percentage of these costs as profit. The percentage of cost added to the contractor's actual cost is fixed and agreed upon in the contract.
This contract type provides no incentive for the contractor to control costs since the profit they will receive is based on a percentage of the total costs incurred. As a result, this type of contract is rarely utilized because it can lead to inefficient and wasteful spending by the contractor.
The other contract types mentioned are:
A. Cost Plus Fixed Fee: In this type of contract, the contractor is reimbursed for the actual costs incurred during the performance of the contract, plus a fixed fee as profit. This fixed fee provides an incentive for the contractor to control costs, as any cost savings will increase their profit.
C. Cost Plus Incentive Fee: In this type of contract, the contractor is reimbursed for the actual costs incurred during the performance of the contract, plus an incentive fee based on meeting or exceeding certain performance targets. This type of contract provides an additional incentive for the contractor to control costs and perform efficiently.
D. Cost Plus Award Fee: In this type of contract, the contractor is reimbursed for the actual costs incurred during the performance of the contract, plus an award fee based on meeting or exceeding certain performance targets. This type of contract provides an even stronger incentive for the contractor to control costs and perform efficiently, as the award fee is typically much larger than the incentive fee in a cost plus incentive fee contract.