PcM mock exam Q10
Which type of construction compensation structure encourages a contractor to be most efficient?
A. Cost-plus with a fixed, lump sum fee for overhead and profit
B. Cost-plus with the fee for overhead and profit based upon a percentage of construction cost
C. Stipulated sum
D. Unit price
can anyone explain further why the answer is A and not C? i think both options give motivation to the contractor to complete the work more efficiently.
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Was this from the ncarb practice test? I agree that the answer should be C, although I suppose it calls into question the meaning of efficiency. Any time the contractor’s profit is guaranteed, they are less encouraged to seek the best pricing but why should cost plus cause them to wrap the project up quicker than stipulated sum?
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Stipulated Sum assumes a full set of contract documents that are complete, or at least sufficient to describe the scope of work being purchased by the owner at the time of entering into the agreement and to set a fixed price for that fixed scope of work. In practice, it is not that simple.
Cost Plus is used when construction has to begin before all the drawings are done (this happens more frequently in practice), the contractor may charge the owner for the actual costs of labor, materials and sub-contractors, adding overhead and profit either as an agreed-upon percentage of the costs to be reimbursed or as a fixed amount.What ends up happening in Stipulated Sum is that, if the contractor makes money on the job, the owner cannot ask for a refund. Conversely, if the contractor loses money on the job, the owner cannot be billed for more.
So, A is the answer.
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Thank you for that explanation, Morgan. That does make some sense but it doesn’t really define efficiency as finishing the job earlier. Does starting construction earlier make it more efficient? Are there not instances where cost plus is used after CDs are complete? For instance in the case where quality is the number one driver? The question asks us to make a lot of assumptions
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Thank you for your responses!
This question is from the ARE 5.0 Mock Exam by Ballast.
I had the same thoughts with you Katerina. I think it boils down to the more accurate definition of efficiency. I also thought that it should be cost and time but if it is quality work done in a shorter time, it may be A.The book’s explanation was similar to Morgan’s explanation which makes me assume a few things/additional factors that were not in the question, which I try to avoid. I agree that in most situations, cost plus is used more than stipulated sum.
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Have you tried the Amber book questions? S bit difficult to get last minute unfortunately. I’ve heard Elif’s ARE questions are good and also hyperfine. Sorry I can’t be more help! But feel free to post any questions you’re unsure about. I’m just rereading chapter 9 of AHPP now covering project delivery methods
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Hi Karim, I’m sorry about your experience. The provisional feedback was “likely pass” but I have to say I also felt the test was horrible, especially the use of tricky language. I was so nervous I wouldn’t finish. Praying I can rely on the “likely pass” as I never want to do that again
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