Evaluating Contracts Assignment Example | Topics and Well Written Essays - 1500 words

Evaluating Contracts - Assignment Example unconnected from the costs of the materials, the business will then have its markup, and the arrangement accommodates changes in the values of materials (Gido & Clements, 2014, p. 87).The advantages of entering into a fixed-price subjugate for the business include that it will allow the business to secure and plan the execution of the contract fully, righteousness from the beginning of the contract. The case for a cost-reimbursement contractual agreement is different, because the agreement limits the moolahs that the business could make from the execution, irrespective of the duration taken and the efficiency of executing the work. Secondly, this type of contracting will simplify the process of sales forecasting, because the profits to be drawn from the contract can be determined before commencement the project, and that allows for to a greater extent sales prospecting. The case is different in the case of entering into a cost-reimburse ment contract, because disputes over the costs of materials and bear on can affect the process of reimbursement and the profitability of the business as a result (Gido & Clements, 2014, p. 87). The major run a risk arising from entering into this type of contract is that, it is likely that the business will agree on a price which is too low, to the extent that it may not meet the costs of labor and materials adequately. Further, there is the risk that the step-up of the prices (costs) of the materials needed for the execution of the contract may limit the business ability to make a profit from the contract, especially in the event that prices increase. The case is different in the case the business enters into a cost-reimbursement contractual arrangement, because it will allow the business the advantage of determining the profits to be made before starting the contract. This advantage is highly significant, where there is a risk of change (increment) in the costs of labor and ma terials. Arising