JBran: Add as a Colleague
06/17/2010 6:18:21 PM EDT

A pure cost-plus contract cannot include any incentives for the contractor to reduce costs. As you say it is against the interests of the contractor to do so, which is why cost-plus is unlikely to align the parties’ interests, hence needs to be managed closely. To create a cost reduction incentive you have to agree a target cost of some sort, then share any under/over-runs with the contractor, which brings you into the alliance territory (i.e. seeking to align the parties’ objectives). There are lots of issues to be tackled with this – e.g. cost versus quality – but most people would label it as an alliance once you introduce that type of incentive. For more information please feel free to visit the PCI Alliance Services Website at www.pci-aus.com