Quick Answer: What Is A Pain Gain Contract?

How does a target cost contract work?

Target Price Contracts are based on a cost reimbursable mechanism in which the contractor is reimbursed his costs (on an actual cost basis) subject to the application at the end of the project of a formula which allows the contractor to share any savings made and to contribute towards overspend.

What is the meaning of lump sum contract?

Under a lump sum contract, a single ‘lump sum’ price for all the works is agreed before the works begin. It is defined in the CIOB Code of Estimating Practice as, ‘a fixed price contract where contractors undertake to be responsible for executing the complete contract work for a stated total sum of money.

What are disallowed costs?

Disallowed cost. The disallowed cost may include costs that appear to fall within the definition of defined cost, but that have been incurred as a result of the contractor’s failure or default. This includes: Amounts that should not have been paid to a subcontractor.

What is a defined cost?

Defined cost. Very broadly, the defined cost includes payments due to subcontractors and the cost of components for other works (such as plant, equipment, people and so on), minus the disallowed cost. The contract stipulates that only amounts incurred to provide the works are recoverable as cost components.

What is a guaranteed maximum price contract?

A guaranteed maximum price (also known as GMP, not-to-exceed price, NTE, or NTX) contract is a cost-type contract (also known as an open-book contract) where the contractor is compensated for actual costs incurred plus a fixed fee subject to a ceiling price.

What do you mean by cost plus contract?

Definition. In a construction cost-plus contract, the buyer agrees to cover the actual expenses of the project. These costs include labor and materials, plus other costs incurred to complete the work. The “plus” part refers to a fixed fee agreed upon in advance that covers the contractor’s overhead and profit.

What is the difference between fixed price and lump sum contract?

Lump sum (or stipulated sum) contracts are sometimes referred to as ‘fixed price’ or ‘firm price’ contracts, although strictly this is not correct. On a lump sum contract, a single ‘lump sum’ price is agreed before the works begin.

How does a lump sum contract work?

Under a lump sum contract, a single ‘lump sum’ price for all the works is agreed before the works begin. It is defined in the CIOB Code of Estimating Practice as, ‘a fixed price contract where contractors undertake to be responsible for executing the complete contract work for a stated total sum of money.

What is the difference between GMP and lump sum?

A Lump Sum contract price will always be lower than the Guaranteed Maximum Price in a GMP/Cost-Plus contract because the GMP/cost-Plus contract will include a construction contingency (typically 5% plus or minus that is not included in a Lump Sum contract amount.