The Study Of Selection Between Fixed Price Contract And Cost Plus Fee Contract

The selection between fixed price contract and cost plus fee contract in theconstruction project contract was studied in the article. The adaptation between theproject and contract type was looked for. To avoid the outcome such as resourceswaste, the dispute between two parties of a contract, excess budget and shut down ofthe construction and so on. The huge economic losses would be saved, and themaximum interest was achieved for both parties.Since the business owner plays a decisive role in the chosen of a contract, theview from the owner was selected in this article for the study of type of contract. Inorder to solve this problem, the systems analysis method was used to analyze thesetwo types of contract. On the base of the theory and the study of the presentsituation, two types of models were built on the view of the principle-agent theory. Italso analyzed the condition of choice. The main content of this article is asfollows:By giving the questionnaire survey about “the selection of types of constructioncontract”, the current situation of these two types of contracts was analyzed.Combing the reasons and methods of choice of two contracts, it concluded thedisadvantages selection method.On the basis of the above study, according to commission-agent theory oneconomics, the two types of contract models are built of principal agent model. Bythis model, the comparison between the two contracts was made by changing settingsof the parameters in the model. From the aspects of cost minimization and efficiencymaximization, it reflects intuitively the influence of different factors of two kinds of contract type selection. It made up the short coming of choice method.Basing on the two contract model, aiming at the risks in the two kinds ofcontracts, it risk factors was introduced on the base of working content, engineeringquantity, project unit price and analysisof the four aspects of distribution contract type.Based on the risk tolerance of the business owner, it helps to select the right type ofcontract.