Page 31 - AASBO Winter 2018.indd

COST-PLUS-A-PERCENTAGE-OF-COST the discount, regardless of being a mark-up. at price list may
or may not have any bearing on the cost from vendor ABC, but
CONTINUED FROM PAGE 30 it really shouldn’t matter because pricing has been locked in for

authority for all things public purchasing – for de nitions in its the term of the agreement with vendor ABC. is should not
o cial Dictionary of De nitions: (http://www.nigp.org/eweb docs/ be considered a Cost-Plus-A-Percentage-Of-Cost contract and
education/OnlineDict/DictC.htm). e rst thing we note is that should be more appropriately termed, a Manufacturer’s Price List
NIGP recognizes another term. “Cost Plus Fixed Fee Contract with a Mark-up.
(CPFF) is de ned by NIGP as: “A contract whereby the contractor Let’s face it! We already have a published list price with a
is reimbursed for its actual incurred cost for material, labor and percent-o discount. is process works the same but actually
other agreed to incidentals, plus a xed sum established in the adds a percentage instead of discounting. e big picture here is
contract. (Harney, 1992).” Further, “Cost Plus Percentage of Cost the DEFINITION and the MEANING BEHIND IT. Remember
Contracts” is de ned as: “An agreement on a construction project the rule, “THE USE OF A COST-PLUS-A-PERCENTAGE-OF-
in which the contractor is provided a speci ed percentage pro t COST CONTRACT IS PROHIBITED.” Now, remember the
over and above the actual costs of construction. ese contracts meaning behind it. ese contracts are considered a poor business
are considered poor business practice because the contractor has practice because the contractor has little incentive to hold down
little incentive to hold down costs. is type of costing method is costs. With an “Established Catalog Price,” the incentive to hold
prohibited in federal purchasing. A cost-plus- xed-fee contract is down costs goes away! Why? You have a manufacturer’s published
a better approach.” price list and you now know
As you can clearly see based the percentage of mark-up that
on the definitions above, the should remain constant for the
major issue with Cost-Plus- One more thing to remember is that our term of the contract or at least
Percentage-of-Cost is having rules do allow us to execute Construction for the time frame that the
little incentive for the supplier to procurement and supplier have
help keep costs down. ere are Manager at Risk (CM@Risk) contracts agreed to!!
other concerns with a true Cost- One more thing to remember
Plus-A-Percentage-Of-Cost, as for percentages over for the actual cost is that our rules do allow us to
the supplier would not be able to execute Construction Manager
o er any type of manufacturer’s of construction for overhead and pro t. at Risk (CM@Risk) contracts for
published price list. Cost-Plus- percentages over the actual cost
A-Percentage-Of-Cost comes That pricing is based on the Guaranteed of construction for overhead
about because the vendor cannot and pro t. at pricing is based
lock in pricing due to volatility of Maximum Price (GMP) at the time of on the Guaranteed Maximum
products, myriad suppliers, etc. contract award. We want to make sure Price (GMP) at the time of
Whatever the reason, vendors contract award. We want to
simply won’t commit to pricing you understand this type of contract make sure you understand that
due to their inability to know this type of contract is allowed
the cost, until they’ve received is allowed by our rules. by our rules.
pricing from their own suppliers. It is our sincere hope that
The same concept applies to this article will dispel the
architect contracts, where a at myth that the School District
fee would be better than a percentage of actual cost construction. Procurement Rules prohibit us from allowing a vendor to
A great example that illustrates this is: submit a manufacturer’s price list with a mark-up. We have
Vendor ABC contacts his supplier on November 1, 2017, and shown throughout this article that the prohibition clearly has
gets pricing for two weeks, four weeks... whatever the case may be. nothing to do with manufacturer price list mark-ups. So, feel
When the same vendor ABC contacts his supplier on November 15, free to exercise these types of contracts if you agree and it proves
17 or later, the price has changed and that is what constitutes his to be advantageous to your district.
Cost-Plus methodology.
ere is a bigger concern or point of interest though! e fact Gary Barkman is a Procurement Specialist Supervisor with Mesa
that sometimes individuals misunderstand and/or misrepresent Public Schools and can be reached at gabarkman@mpsaz.org.
what Cost-Plus-A-Percentage-Of-Cost really is. We believe that
some folks seem to get caught up with the word “Cost-Plus” and Bill Munch is the Procurement Compliance and Training Of cer
pay no attention to the rest of the phrase. Hopefully, examples for Valley Schools Management Group and may be reached by
above and below should help to clarify some of the di erence. email at bmunch@vsit.org.
Let’s take another example, wherein the vendor supplies
pricing based on a manufacturer’s published price list. Vendor Both are Certi ed Professional Public Buyers (CPPB) as
ABC then decides to o er pricing based on a mark-up from that recognized by NIGP, the National Institute of Governmental
manufacturer price list. You now have a base price and know Purchasing.

31