TYPES OF CONTRACT FOR MAINTENANCE SERVICES

Piece Work or Piece Rate Contract

• In this type of contract, the contractor has to quote separately for each item of work.
• E.g.. If a Contractor has to maintain a set kitchen oven, replacement/repair of each item such as burner, valves, gas pipelines, etc. could have different rates for maintenance.

Lump-Sum Rate Contract

• In this type of contract, the contractor has to quote for maintenance of the equipment as a whole.
• This type of contract is usually availed for a specific one time job on some specific equipment or group of machines or group of workers.
• E.g.. If a Contractor has to maintain a set kitchen oven including burner, valves, gas pipelines, etc. he would charge a lump sum amount.

Rate Contract

• In this type of contract, the contractor agrees to supply items or labor at a fixed rate for a certain period usually for a year.
• It is also known as Annual Maintenance Contract.

Service Contract

• This type of contract is usually made for a year-round routine, usually involving preventive and scheduled maintenance of a plant/system and the contractor is needed to carry out these activities for a specific period of time.
• Maintenance contract of engines, air – conditioning plant, swimming pool, water treatment plant, etc. if they are contracted out, usually follow this type of contract maintenance.

Turnkey Contract

• This type of contract usually relates to the execution of a job from scratch to finishing such as making a building from greenfield to a stage ready for possession.
• Supplying, installing and commissioning of a water treatment plant.

Multi-Stage Contract

• This type of contract is awarded for a job segregated by different stages of execution of the job.
• This means that the contractor will have an order for execution of a job subject to the satisfactory completion of different stages.
• The contract awarding authority keeps the right to cancel the contract at any particular specified stage of the job on mutually agreed terms.
• E.g.. Instead of awarding the whole contract of making a building, the contract may be made in stages where assessment for the job may be made after completion of each stage. The stages of a contract could be laying the foundation, erecting the superstructure, completing brickwork, etc.

Cost Plus Fixed Fee Contract

What is a “Cost Plus Fixed Fee Contract”?

A cost-plus-fixed-fee contract is a specific type of contract wherein the contractor is paid for the normal expenses for a project, plus an additional fixed fee for their services.

The “fixed fee” portion of the contract may be subject to negotiation between the parties, and can, therefore, vary according to the needs in each project.  Cost-plus fixed-fee contracts are sometimes referred to as CPFF contracts, cost-plus contracts, cost-reimbursement contracts, and cost-plus-fixed-fee contracts.

When is a Cost Plus Fixed Fee Contract Used?

Cost-plus fixed-fee contracts can be used when both the contractor and the owner agree that the contractor is entitled to a fee in addition to the project expenses.  There may be various reasons for this agreement, but cost-plus contracts should also spell out the basic reasons that the contractor is entitled to the fee.  There should also be provisions addressing what legal consequences should follow if the fee provisions aren’t upheld.

What Are Some Pros and Cons of Cost Plus Fixed-Fee Contracts?

Depending on the parties’ needs, there may be different pros and cons to using a cost-plus-fixed-fee contract arrangement.  In order to avoid a breach of contract, both parties should consider these aspects of cost-plus contracts.

Some advantages of a CPFF contract can include:

The final cost may be lower than in a normal contract, as the contractor usually will not “inflate” prices to cover risks
The contractor also has less incentive to control the project costs (in contrast to other types of contracts, such as a fixed-price contract)
They can often ensure higher-quality output than normal contracts

Disadvantages of cost-plus-fixed-fee contracts may include:

The final, overall cost may not be very clear at the beginning of negotiations
May require additional administration or oversight of the project to ensure that the contractor is factoring in  the various cost factors
Maybe less incentive to complete the project in an efficient manner, compared with fixed-price contracts
Thus, both parties should weigh all the pros and cons before entering into a cost-plus fixed-price contract.  Again, each contract will be different, depending on the type of project involved and the relationship of the parties.