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Pre-Commit and Auto-Commit Contracts
A
pre-commit contract is a contract
for which you define most of the costs when you create it. Subsequent
change orders against the contract also affect the contract's costs.
In
contrast, an auto-commit contract is a contract for which you
define the costs on an ongoing basis through invoices. The line items
that you add to the invoices do not appear on the contract.
Examples
of auto-commit contracts
- Own-labor costs contract:
From the project's perspective, using the company’s own labor is similar
to using the labor of any other supplier on the project. The company charges
the project for the company resources that it uses. These charges are
represented by internal invoices against an auto-commit contract.
- Cost-plus construction contract: The awarding company agrees to pay the receiving company
for the sum of costs for the period, plus allowed markups. Managing the
total forecasted cost of the project is challenging because there are
no firm commitments.
- Courier company contract: Whenever a courier company sends you an invoice, you enter
it against the contract and allocate
some money from a cost
account to cover the work.
- Cost-plus design contract: The team hires a company for some or all of the design work
on a project on a daily or hourly charge-out basis. The project is not
committed for the entire design contract, although there might be some
sort of termination agreement, such as one month’s notice. As the commitment
grows with each invoice, the forecasted cost decreases.