Contract Pricing Principles
What is pricing?
• Pricing:
The process of establishing a reasonable amount or amounts to be
paid for supplies or services
Types of price
• Commercial prices: Prices being paid by the general public for a
product
• Competitive prices: Offers received under conditions of adequate
price competition
• Price analysis: The process of examining and evaluating a proposed
price without evaluating its separate cost elements and proposed
profit
• Reasonable price: Price that a prudent and competent buyer would
be willing to pay, given available data
Pricing Objectives
• To seller, contract pricing has two primary, related objectives:
• To cover costs
• To contribute to attaining corporate operational objectives
What is a Fair and Reasonable Price?
• A Reasonable Price
• A price a prudent buyer would be willing to pay, given
knowledge of:
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Market conditions
Supply and demand
General economic conditions
Competition
Market definition
Relative pricing
• A Fair Price
• Fair to both parties (buyer and seller) under market
conditions
What is Contract Price?
• A contract price is the price listed in the contract for the good or
services to be received in return.
• Mutually agreed upon total amount that a principal (client or project
owner) pays to a contractor on completion of the contract, in
accordance with contract terms and conditions and their
subsequent modifications (if any). Also called contract sum.
Contract law
• In contract law, the contract price is a material term. The contract
price is the price for the goods or services to be received in the
contract. The contract price helps to determine whether a contract
may exist. If the contract price is not included in the written contract,
then upon litigation the court may hold that a contract did not exist.
• In litigation, the contract price is a factor for
determining damages upon a party forsaking its contractual
obligations. The contract price as a point of reference may help
determine the expectancy interest of the party suffering damages as
well as the reliance interest along with damages under promissory
estoppel.
The End
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