Payment Methods

After the CM identifies the contract type (on-call, or project-specific), he/she determines the appropriate payment method:

• Specific rates of compensation (SROC)
• Firm fixed price (FFP)
• Actual cost plus fixed fee (ACPFF)
• Cost per unit of work

Specific rates of compensation (SROC)

Recommended use	On-call contracts (task orders for services or products)
Usage frequency	Commonly used
Payment units and rate	Hourly rate based on a combination of wages, overhead, benefits and profit

After approving the consultant invoices, the CM reimburses the other direct costs identified in the task order (e.g., reproduction, vehicles). Rates are stated in the contract cost proposal. The pros for using this payment method are that the negotiations are easier since consultant will be reimbursed for allowable actual costs and this contract requires average administrative effort. The cons are that unless strict task order controls are in place, the consultant may be inefficient, there is no incentive for the consultant to be efficient (the more the consultant works, the more profit they make), and longer-term contracts may require higher fees due to uncertainties.

 

Firm fixed price (FFP)

Recommended use	Project-specific contracts with well-defined scope of work
Usage frequency	Rarely used; contact DPAC before submitting the ADM 360 package
Payment units and rate	Total amount the consultant will be paid upon completion and acceptance of deliverables Progress payments based on percentage of completed milestones

Firm fixed price (FFP) is casually referred to as lump sum, but the two concepts are slightly different.

• FFP contracts allow progress payments.

• Lump sum contracts allow payment only upon receipt of a deliverable.

The pros for using this payment method are that the owner's liability is limited and this payment method requires minimal administrative effort. The cons are that if the consultant underestimates then various problems with the consultant may arise and if the consultant overestimates, the owner will overpay for the product.

Actual cost plus fixed fee (ACPFF)

Recommended use	All contract types, when: Extent, scope, complexity, character, or duration of work is indeterminable at the time of negotiations. The state lacks the experience or knowledge needed to evaluate the consultant’s proposal and to support an FFP
Usage frequency	Rarely used; contact DPAC before submitting the ADM 360 package
Payment units and rate	Actual costs incurred, plus additional pre-determined amount as a fixed fee

 

The fixed fee is not adjustable for the life of the contract except where there is a significant change in the scope of the work, in which case the contract may be amended and the fee may be re-negotiated. The pros for using this payment method are that the owner's funding liabilities are limited to a certain extent and this payment method require low to average administrative effort. The cons are that unless strict controls are in place, costs incurred may not be reasonable and there are minimal incentives for the consultant to be efficient.

 

Cost per unit of work

Recommended use	A contract that is product-based or for non-A&E services
Usage frequency	Rarely used; contact DPAC before submitting the ADM 360 package
Payment units and rate	Negotiated rate based on the amount of work performed

The pro for using this payment method is that this contract requires minimal administrative effort. The con is that there in no flexibility when work outside the established item/unit is required.