TOPIC: Time & Materials Contracts

Going through the Self Assessment (as a post course) there's an answer I don't understand. It's Question 24 related to contract types.

The correct answer is D and I don't understand why. The important part of the question seems to be "She wants to have some degree of control over the project costs."

per p.472, T&M is useful when a precise SOW cannot be quickly prescribed - BUT - how does it give you any control at all over project costs? Full question below -

A project manager is leading a land reclamation project. She plans to engage
a contractor for the civil works. However, since the exact project scope is unknown, the
project manager is finding it hard to negotiate a fixed price contract with the contractor
company. She wants to have some degree of control over the project costs. Which of the
following contract types is ideal in this situation?

A.) Cost plus incentive fee (CPIF)
B.) Cost plus award fee (CPAF)
C.) Cost plus fixed fee (CPIF)
D.) Time and materials (T&M)

Riaz:

I can't answer this PMBOK-ily, but I will answer it from a business owner perspective:

A,B and C are the reasons why the PM cannot negotiate a contract with a vendor. Because of the vague SOW, vendors will view cost-plus contacts as too risky because they do not know what they are getting themselves into. The only way a vendor will bite will be time and materials.

The PM may be able to negotiate the cost of the "time" aspect: The vendor may be open to reducing the hourly rate for a guaranteed number of hours and the like.

Just because the PM wants to have some degree of control does not imply that they will get what they want. I think the key aspect of the question is, "The PM is finding it hard to negotiate." No vendor is biting.

Hope that helps. If a more savvy moderator has a better answer, please chime in!

Harry

Thanks Harry - that does help. Think I was too focussed on the wrong part of the question.