Procuring, Managing, and Evaluating the Performance of Contracted TMC Services
There are various types of contracting mechanisms that may be used to procure TMC services. Items to consider are price, type/complexity of project requirements, urgency of requirements, period of contract performance, and agency procurement history. The desired outcome often becomes the driving force for which contracting mechanism is used. When contracting with a private entity, they may involve some combination of contractor costs, fees, profit, and incentives. TMC services may also be procured through “voluntary” arrangements such as agreements with other public agencies, volunteer services, or student internships.
Contract and agreement types include:
Firm-fixed-price contract – contractor is fully responsible for performance costs and enjoys (or suffers) resulting profits (or losses). There is no adjustment for contractor cost during the performance of the contract. This is also known as a lump sum contract in which the contractor gives one price based on single-unit quantities. Firm-fixed-price contracts are appropriate when quantities can be accurately determined and there is a well-defined statement of work. When quantities are unknown, the element of risk for the contractor is higher, and higher prices may ensue. These types of contracts are less typical for professional service procurements.
Fixed-price incentive contracts – the final contract price and profit are calculated based on a formula that relates final negotiated cost to target cost; these may be either firm target or successive targets. One such example would be a construction project that pays based on quantities but also offers an incentive for early finish (either milestone or the entire job) and disincentives/penalties for exceeding deadlines.
Fixed-price contracts with award fees – may be used to motivate a contractor when contractor performance cannot be measured objectively, making other incentives inappropriate. This unique incentive structure allows the owner to reward the contractor for above-average performance.
Cost-reimbursement incentive contracts – may be used when fixed-price contracts are inappropriate due to uncertainty about probable costs. These may be either cost-plus-incentive-fee or cost-plus-award-fee. This type of contract allows for an adjustment of profit and establishes the final price via a relationship between final negotiated cost to total cost. When incentives are included on technical performance/delivery, the incentives can have a meaningful impact of the contractor’s management of the work.
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