| Course | PJM-5400 Procurement and Vendor Management |
|---|---|
| Module | Module 4 |
| Paper type | Module 4 written assignment: contract pricing |
| Length | About 555 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | M.S. in Management in Project Management |
| Updated | October 2026 |
Free sample paper for PJM 5400 Module 4
Sharing the Overrun: Price Analysis and a Fixed-Price Incentive for Meter Installation
Student Name
M.S. in Management in Project Management, Thomas Edison State University
PJM-5400: Procurement and Vendor Management
Mentor Name
Month Day, Year
Sharing the Overrun: Price Analysis and a Fixed-Price Incentive for Meter Installation
Price Analysis
Garrett (2010) distinguishes price analysis, which judges a price without examining its cost elements, by comparing it with other bids, past prices or independent estimates, from cost analysis, which examines the elements behind the price, such as labor, materials, overhead and profit.
Bidders A and B fall within a reasonable range of our estimate and of each other. Bidder C is 30 percent higher; its proposal assumed that a larger share of meters would need difficult access work. That assumption deserves a question in discussions rather than dismissal, since Bidder C may know something about older homes that the others missed. Because adequate competition exists, price analysis is enough to judge A and B, consistent with federal practice, which treats adequate price competition as a basis for finding a price fair and reasonable (Federal Acquisition Regulation, 2024); cost analysis would be needed if we negotiated a sole-source change or if a bid looked unrealistically low.
| Bidder | Unit price per meter | Total for 48,000 | Difference from estimate |
|---|---|---|---|
| Bidder A | $82 | $3,936,000 | +2.5 percent |
| Bidder B | $76 | $3,648,000 | negative 5.0 percent |
| Bidder C | $104 | $4,992,000 | +30.0 percent |
| Independent estimate | $80 | $3,840,000 |
Why an Incentive Arrangement
Installation costs depend on how many basements are cluttered, flooded or locked, which no bidder can know exactly. A firm fixed price would push that risk onto the installer, who would price it in. A fixed-price incentive fee arrangement shares the risk: the parties agree on a target cost, a target profit, a share ratio for overruns and underruns, and a ceiling price above which the seller bears all cost.
| Term | Value |
|---|---|
| Target cost | $3,600,000 |
| Target profit | $360,000 (10 percent) |
| Target price | $3,960,000 |
| Share ratio (utility/installer) | 70/30 |
| Ceiling price | $4,320,000 (120 percent of target cost) |
Outcomes at Four Cost Levels
The installer's profit equals target profit plus 30 percent of any underrun, or minus 30 percent of any overrun, until the ceiling price is reached.
At $4.2 million, the formula would give a price of $4.38 million, above the ceiling, so the price is capped at $4.32 million and the installer's profit falls to $120,000.
| Actual cost | Installer profit | Price to utility |
|---|---|---|
| $3,300,000 | $450,000 | $3,750,000 |
| $3,600,000 | $360,000 | $3,960,000 |
| $3,900,000 | $270,000 | $4,170,000 |
| $4,200,000 | $120,000 | $4,320,000 (ceiling) |
Point of Total Assumption
The point of total assumption is the cost at which the ceiling price is reached and the seller begins to bear every additional dollar. It equals target cost plus (ceiling price minus target price) divided by the buyer's share: $3,600,000 + ($4,320,000 minus $3,960,000) / 0.70 = about $4,114,000.
Above about $4.11 million in cost, every dollar comes out of the installer's profit, a strong incentive to control cost, and one the installer will weigh carefully when it plans crews and schedules.
Recommendation
Negotiate a fixed-price incentive fee contract with Bidder B, whose unit price produces the target cost, after confirming in discussions that its difficult-access assumptions are realistic. Bajari and Tadelis (2001) note that incentive strength must be balanced against the cost of renegotiation; a 70/30 share gives the installer a real stake without making every surprise a dispute.
Conclusion
Price analysis shows two bids are fair and reasonable. A fixed-price incentive fee arrangement shares installation risk, rewards cost control and caps the utility's exposure at $4.32 million.
References
Bajari, P., & Tadelis, S. (2001). Incentives versus transaction costs: A theory of procurement contracts. RAND Journal of Economics, 32(3), 387-407. https://doi.org/10.2307/2696361
Federal Acquisition Regulation, 48 C.F.R. pt. 15 (2024).
Garrett, G. A. (2010). World class contracting (5th ed.). CCH.
PJM 5400 Module 4 instructions, in plain terms
Contract pricing is this assignment's subject, and the course project's Part 2, covering the rest of your RFP, falls due as the module closes. You will evaluate prices with price analysis, explain when cost analysis is needed, and structure or analyze incentive arrangements such as fixed-price incentive fee contracts. Show calculations in tables, including outcomes at several cost levels, and explain what each term of an incentive arrangement does to the parties' incentives. Show outcomes at several cost levels, including one that reaches the ceiling, and compute the point of total assumption. Explain the role of each incentive term. State whether price analysis alone suffices, and why.
How this PJM 5400 Module 4 example is built
The paper compares three bids with an independent estimate in a table and explains why price analysis suffices. A section explains why an incentive arrangement suits installation. A table sets the target cost, target profit, share ratio and ceiling, and a second table shows profit and price at four cost levels, including one capped at the ceiling. A section computes the point of total assumption, and a recommendation and conclusion follow. The price analysis treats the high bid's assumption as a question for discussions, recognizing that an outlier may know something the others missed. The recommendation names the bidder and the issue to confirm in discussions before award. A section computes the point of total assumption and explains what it means for each party. The conclusion names the cap on exposure.
PJM 5400 Module 4 rubric: what earns full marks
Mentors grade this assignment on correct pricing calculations, accurate explanation of price and cost analysis, a well-structured incentive arrangement and clear reasoning. Papers that show outcomes at several cost levels, including the ceiling, demonstrate command of incentive contracts. Computing the point of total assumption shows precision. Linking the share ratio to research on incentives and renegotiation shows judgment. Treating an outlying bid as information, not only as a number to discard, shows judgment in price analysis. Tables for terms and outcomes make the incentive structure easy to verify. A clear recommendation completes the analysis. Precise figures at each step show care. Linking the share ratio to research on incentives adds depth.
PJM 5400 Module 4 help from the desk
Students lose points by miscomputing profit when costs exceed target, by forgetting the ceiling or by confusing price analysis with cost analysis. Others set share ratios without explanation. Show outcomes at several cost levels. Apply the ceiling. Compute the point of total assumption. Explain why your share ratio fits the risk. Question an outlying bid's assumptions before setting the bid aside. Show the price at the ceiling as well as at target, and explain what the share ratio rewards. A free first sample on your own PJM-5400 contract pricing assignment is available on request.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Thomas Edison State University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
More PJM 5400 and M.S. in Management in Project Management sample papers
- PJM 5400 Module 1: Written Assignment: The Procurement Team and Trust for a Smart Meter Program
- PJM 5400 Module 2: Written Assignment: Choosing Contract Types for Meters, Installation and Integration
- PJM 5400 Module 3: Written Assignment: The RFP, Evaluation Criteria and a Best Value Source Selection Plan
- PJM 5400 Module 5: Written Assignment: Negotiating the Award and Debriefing the Losing Bidders
- PJM 5400 Module 6: Written Assignment: Administering the Smart Meter Contract Through Closeout
- PJM 6400 Module 5: Final Project: A Report to Executives on a Global Project Management Office
- PJM 5200 Module 2: Written Assignment: A Charter and Stakeholder Plan for the Portal Upgrade
- PJM 5300 Module 3: Case Study: Three-Point Estimates and the Chance of Meeting the Start Date
PJM 5400 Module 4 questions, answered
Where can I find a free PJM 5400 Module 4 sample paper?
Price analysis and a fixed-price incentive fee structure for meter installation are worked in the assignment above.
What is the difference between price analysis and cost analysis?
Price analysis judges a price against other prices or estimates; cost analysis examines the cost elements behind it.
How does a fixed-price incentive fee contract work?
The parties share overruns and underruns by an agreed ratio around a target cost, up to a ceiling price.
What is the point of total assumption?
The cost at which the ceiling price is reached and the seller bears every additional dollar of cost.
How is the point of total assumption calculated?
Target cost plus the difference between ceiling price and target price, divided by the buyer's share.