Query on Contract Questions

Discussion in 'PMP' started by _42086, Jul 28, 2019.

  1. _42086

    _42086 Member

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    In a cost reimbursable contract, the risk of cost escalation is borne by the:
    a) Buyer
    b) Seller
    c) Project manager
    d) Seller and buyer

    Answer mentioned: a

    My Inputs:
    As per my understanding, In a cost reimbursable contract specially in cost plus incentive fee the risk of cost escalation is borne by both buyer and seller. For other cost reimbursable contract like cost plus fixed fee or cost plus award fee, risk is with buyer. How would we answer these questions when question doesn mentions much details like in above question.
    In above question i would have selected the answer as A if there would not have been any option of selecting both buyer and seller. But since this option was present, I thought it is safe to select both since it covers all variations of cost reimbursable contract.

    Let us know your inputs on this
     
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  2. Rajat_Kumar

    Rajat_Kumar Active Member
    Simplilearn Support Alumni

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    Your Query will be answered in 2-3 days, @tim jerome please look into it.
     
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  3. Arvind Shekhar

    Arvind Shekhar Well-Known Member

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    You are right for cost + Incentive fee contract up to some extent.

    But in other 3 type of cost reimbursement contracts cost risk is of buyer.

    In cost + incentive contract also sometimes max and minimum fee ceilings are given , in that case also major cost escalation risk is again with buyer since sellers part would not go below minimum agreed fee.( limited liability). More over buyers ratio is always more and sellers ratio is less so in case of cost escalation buyer has major risk.
    Going by best answer logic A is best answer, as for other 3 type of cost reimbursable contract Buyer is right answer.
    it is tricky question. if you go by most of PMP guides including RITA buyer has the most cost risks in Cost reimbursable contract as total cost are unknown.

    Arvind
     
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