Types of Contracts - Essay Example

This contract settles the costs incurred by the seller and a pre-determined fee above the actual costs which represent the profit enjoyed (Carstens, Richardson & Smith, 2013). The seller, therefore, embarks on a project without limitations to expenditure but files all expenses incurred to be passed on to the buyer. This contract exposes the buyer to more risk than the seller because valuation will contain all expenses despite cases of poor workmanship and material resource mismanagement. An example of risk is where the buyer only receives receipts of purchases that are subject to the negligence of the seller who may overlook good pricing of commodities in favor of convenience.

Time and Material Contracts contain elements that are characteristic of the Cost Reimbursable Contracts and The Firm Fixed Price Contract. The contracts are best applied in cases of ambiguity or unclear statements of work (Carstens, Richardson & Smith, 2013). An example is where the workers need to be increased for shorter executions to meet challenges previously unforeseen on the project. Alternatively, the engagement of experts on certain aspects of work may require such contracts. This type of contract shares the burden of risk between the sellers and buyers. The risk falls more on the partner who requires the adjustments beyond basic agreements of the project procurement contract. However, most cases call for open ends on buyers' cost increase during periods of uncertainty.