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FP Contract

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mandarapu
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FP Contract

Postby mandarapu Thu Jul 17, 2014 6:39 pm

In a fixed price contract,the fee or profit is :

A.Unknown
B.Part of negotiation involved in paying every invoice
C.Applied as a line item to every invoice
D.Determined with the other party at the end of the project

Why not C is right answer ?. What is right answer ?.
mandarapu
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Re: FP Contract

Postby mandarapu Thu Jul 17, 2014 6:44 pm

Which is the right answer ? I initially thought C as right but in every invoice fee may not be there,rather for over all work - fee will be paid along with bulk cost.Please correct me ?.
B also cannot be right becos there is no negotiation at all in FP,Right sir ?.
signor_rk
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Re: FP Contract

Postby signor_rk Fri Jul 18, 2014 5:05 am

In my opinion , the options are as follows :
A.Unknown > This not correct , as the profit part is already considered while negotiating the Contract.
B.Part of negotiation involved in paying every invoice > This is generally not done while paying any invoice.
C.Applied as a line item to every invoice > Line item viz. Profit after tax is not shown in every invoice.
D.Determined with the other party at the end of the project > Seems the CORRECT option.
Regards ,

Ranjit
sunku65
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Re: FP Contract

Postby sunku65 Fri Jul 18, 2014 6:04 am

This question is talking on the basis of Buyers side.
So, fixed price contract, the fees or profit is Unknown to the buyer.

Choice D, is wrong. The other party(Seller) is the profit and fee already knows before the project starts.
karthikbalaram
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Re: FP Contract

Postby karthikbalaram Fri Jul 18, 2014 6:22 am

The correct answer is A. We need to think from Buyer's point of view.When the seller is going to quote,he will not tell you the amount of profit he is going to make on it.So he will invoice you only the amount for which you won't know the profit.So the correct answer is unknown,hence A.
namita
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Re: FP Contract

Postby namita Fri Jul 18, 2014 6:58 am

Agree with option A explanation
mandarapu
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Re: FP Contract

Postby mandarapu Fri Jul 18, 2014 11:18 am

option A is correct not D.Fixed price could even be buying a product in a shop where you see the before buying it ( this is for ruling out option D ).thanks all again.
signor_rk
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Re: FP Contract

Postby signor_rk Fri Jul 18, 2014 11:30 am

I was considering the Buyer's side only.
Suppose the Independent estimate is available with the Procuring Organization/Buyer. Then the profit of the quoted price of Seller can be known , which eliminates the option # A.
Regards ,

Ranjit
mandarapu
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Re: FP Contract

Postby mandarapu Fri Jul 18, 2014 2:29 pm

Independent estimate can help buyer to know approximate profit/fee in an FP contract whether it is a reasonable deal or not ?...but exact value of fee/profit known only to seller.
sunku65
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Re: FP Contract

Postby sunku65 Sun Jul 20, 2014 9:22 am

The independent Estimate is not to figure out how much profit the Contractor make.
How much money the buyer can spent approx. on this work.
Off course we know some profit he will make. But the question is asking on real profit.

That independent estimate is only for comparing to Price BId submitted by contractors
Whether the Bid is reasonable or not.

Just a moment forget about Independent estimate .
Suppose the work will take around $1000. But you don't know the how much it will take.
When you evaluating the Price Bid responses from Contractors(Sellers), you found that all of the contractors quoted the price above $2000.
What you going to do if you don't have Independent Estimates in hand.

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