- There are a few last points to contracting we need to cover, specifically supplier reimbursement as well as supplier selection and the awarding of contracts. In this video, we'll deal with each of these. It's really important that all parties involved in the contract are happy with the reimbursement agreed, because this is often the primary motivation for suppliers to perform the work to an acceptable standard. There are a few things that you need to think about when choosing a reimbursement method, like the ability to start work as soon as possible, how well defined the requirements need to be at the start of the contract being agreed, who owns the risk, what level of supply management is required, how easy it is to manage and implement scope change and how quality might be impacted by specific payment terms. Once you've thought through these key considerations, you need to decide on either a fixed price, cost reimbursable, per unit, or target cost method for reimbursement. A fixed price method means that the price is fixed from the outset of the project for a specific scope of work. This type of contract might also come with economic adjustment scales, if work is ongoing for long periods of time. It might also include an incentive fee if suppliers manage to meet additional expectations. A cost reimbursable method can be done in a few ways too. It might include the cost of the work plus an additional fixed fee. Alternatively, it could be a cost plus award, which means most of the fee is tied to the work being delivered to the satisfaction of specific broad performance criteria. A cost plus incentive method, on the other hand, links the fee to the delivery of specific targets, which are usually financial. A per unit method is linked to the quantity, time, and, or materials being delivered. For this method to work, units need to be well-defined. Last up, a target cost method involves both the customer and the supplier sharing the risk and reward of the project. In addition to these types of reimbursement methods, contracts can also be subject to supplier performance requirements. These include retention money, which provides the customer with a limited fund to correct any identified defects in the project deliverable. Liquidated damages which is a certain amount of money that the supplier will have to pay if they fail to deliver an agreed variations for time, budget and performance considerations if there are external changes that impact the project. Okay, so that's supplier reimbursement. Let's end this video off with a discussion of supplier selection and awarding contracts. Supplier selection also known as provider management is a continual process, that you may need to do throughout the project's life cycle. While it changes from industry to industry, there are five steps you can follow generically that will help you make the best decision possible. First, define the requirements by making sure you know exactly what it is you want the supplier to do for you. Next, establish the criteria by using a prequalification questionnaire, PQQ, to clarify the supplier's capacity, willingness to tender, financial stability and technical experience. With this done, you're ready to solicit and evaluate bids by asking your suppliers to bid for the work. With these in hand, you'll be ready to shortlist the best candidates for the work. Make sure to spend some time in the clarification discussions to help you select a winner who you'll need to negotiate the contract with. When choosing a supplier, I recommend that you focus on the value of the supplier's offering. Maintain confidentiality between bidders, and of course work within any applicable regulatory or legislative frameworks. And that's it for this video. Contracted reimbursement is an important part of contracting, and you need to understand the potential options you can use in your negotiations with contractor. Likewise, there are a few generic steps you can take to make sure you get the best supplier for your work, regardless of the industry you're operating.