Planning : Contract Cost and Term

Contract Cost and Term

Doodle asking "Take risk?" with one arrow pointing to "No" and another arrow pointing to "Yes"The CM, with assistance from other functional units, determines the cost and term of a contract by analyzing the:

  • similar contract expenditures on COST Report
  • resource requirements (labor hours for all A&E contracts)
  • project schedule (for project-specific contracts) or duration of longest project on list (for on-call contracts)
  • products, services, and deliverables
  • classification and experience level of personnel to be assigned
  • other direct cost items, fees, and escalations

For a typical contract, the term should not exceed three years. If a longer term is required, the factors used to generate the cost estimate should increase due to greater uncertainty and risk. If the services are still required after the contract amount has been expended or the contract term has elapsed, a new contract is usually required to continue the services. However, an amendment to continue the work under the existing agreement can be processed with a proper justification such as engineer-of-record issues. Keep an eye on the balance of dollars and time remaining in the contract period of performance so that the new contract request can be submitted and a new contract can be executed before the old contract is no longer usable. The procurement process for the new contract should start early enough to get the new contract executed before the existing contract’s resources (time or money) are depleted. It takes approximately 75 working days (almost four months) to procure a new A&E contract.

The contract cost estimate is called the Director’s Estimate, or workload justification. See this sample Director’s Estimate.