Contract Pricing Types
Awareness of pricing types & associated risks is key commercial succes factor
Selection of contract pricing type depends primarily on the level of scope & quantity definition of the technical package and preferred commercial risk allocation as well as desired level of certainty. So for a fully defined Front End Engineering & Design (FEED) package a Lump Sum fixed price type could be applied.
For construction packages the use of unit prices or unit rates is a fairly common approach whereby certain parts such as mobilisation can be lump sum priced.
Many EPCm services type contracts are normally priced on a cost reimbursable basis (time rate & cost plus) combined with a form of performance incentives based on KPIs.