Page 37 - AASBO EDGE Winter 2023
P. 37
As you can clearly see based on the definitions manufacturer’s price list. You now have a base
above, the major issue with Cost-Plus-a- price and know the discount, regardless of being a
Percentage-of-Cost is having little incentive for the mark-up. That price list may or may not have any
supplier to help keep costs down. There are other bearing on the cost from vendor ABC, but it really
concerns with a true Cost-Plus-a-Percentage-of- shouldn't matter because pricing has been locked
Cost, as the supplier would not be able to offer any in for the term of the agreement with vendor ABC.
type of manufacturer’s published price list. Cost- This should not be considered a Cost-Plus-a-
Plus-a-Percentage-Of-Cost comes about because Percentage-Of-Cost contract and should be more
the vendor cannot lock in pricing due to volatility appropriately termed a Manufacturer's Price List
of products, myriad suppliers, etc. Whatever the with a Mark-up.
reason, vendors simply won’t commit to pricing
due to their inability to know the cost, until they've “As long as a vendor is providing you
received pricing from their own suppliers. The with a published manufacturer's
same concept applies to architect contracts, where
a flat fee would be better than a percentage of price list, they can use that price list
actual cost construction. and give you a percentage mark-up
on the price.”
A great example that illustrates this is:
Vendor ABC contacts his supplier on 12-01-2022 Let's face it! We already have published list price
and gets pricing for two weeks, four weeks... with a percent (%)-off discount. This process
whatever the case may be. When the same vendor works the same but actually adds a percentage
ABC contacts his supplier on 12-15-2022 or later, instead of discounting. The big picture here is
the price has changed and that is what constitutes the DEFINITION and the MEANING BEHIND
his Cost-Plus methodology. IT. Remember the rule, “THE USE OF A COST-
PLUS-A-PERCENTAGE-OF-COST CONTRACT
There is a bigger concern or point of interest though! IS PROHIBITED” NOW, remember the meaning
The fact that sometimes individuals misunderstand behind it. These contracts are considered poor
and/or misrepresent what Cost-Plus-a-Percentage- business practice because the contractor has little
Of-Cost really is. We believe that some folks seem incentive to hold down costs. With an "Established
to get caught up with the word "Cost-Plus" and pay Catalog Price", the incentive to hold down costs
no attention to the rest of the phrase. Hopefully, goes away! Why? You have a manufacturer’s
both examples above and below should help to published price list and you now know the
clarify some of the differences. percentage of mark-up that should remain constant
for the term of the contract or at least for the time
Let's take another example, wherein the vendor frame that the procurement and supplier have
supplies pricing based on a manufacturer’s agreed to!!
published price list. Vendor ABC then decides
to offer pricing based on a mark-up from that One more thing to remember is that our rules do
CONTINUED ON PAGE 38
37
