A Client has decided to use a Cost Plus Incentive Fee contract price arrangement to motivate the Contractor to be more efficient and productive in executing the project. The Contractor’s Fee will be calculated based on a Sliding Fee approach by considering a $110,000,000 target price and a 4% Base (R).
Calculate Contractor’s Fee and Total Payment to the Contractor for two following scenarios:
Given data :-
Target price = $110,000,000
Base (R) = 4%
Scenario 1). :-
Actual cost of project = $102,000,000
Contractor fee :--
Now , formula for calculating sliding fee by sliding approach is
Sliding fee = R (T - A)
Where , R= base Percentage value
T = target price
A= actual cost of project
Sliding fee = 4% ×(110,000,000 - 102,000,000)
Sliding fee = (4/100) ×( 80,000,000)
fee = $ 320,000C
Contractor fee =(actual cost of project)+(sliding fee)
Contractor fee= (102,000,000 + 320,000)
Contractor fee= $ 102,320,000
Total payment of contractor:-T
Total payment of contractor is
= (contractor fee)+(overheads percentage× contractor fee)
Where overhead percentage includes contactor profit for their work which is between 10 to 20 %
Taking overhead percentage= 20%
Now, total payment of contractor is
= (102,320,000) + ( 20% × 102,320,000)
Total payment of contractor = $ 122,784,000
Scenario 2) :--
Actual cost of project= $124,000,000
Contractor fee :-
Sliding fee = R × (T - A)
Sliding fee = 4% ×( 110,000,000 - 124,000,000)
= (4/100) ×( -14,000,000)
Sliding fee= - $560,000
this means the contractor is penalized by the amount of $ 560,000
Contractor fee= (124,000,000 - 560,000)
Contractor fee= $123,440,000
Total payment of contractor is:-
Total payment of contractor
= Contractor fee + (overhead× contractor fee)
= 123,440,000 + ( 20% × 123,440,000)
Total payment of contractor= $148,128,000
A Client has decided to use a Cost Plus Incentive Fee contract price arrangement to motivate...
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