Which of the following contracts would be best suited to a ‘variable pricing’ arrangement?

Which of the following contracts would be best suited to a ‘variable pricing’ arrangement?
A . A contract for window cleaning during the next three months
B. A contract for road building estimated to take five years to complete
C. A contract for the supply of 100 printing machines to be delivered next month
D. A contract for the supply of lubricating oil for immediate delivery

View Answer

Answer: B

Explanation:

Variable pricing is suitable to situations when the cost of certain elements of the product fluctuate unpredictably. For road building, asphalt fluctuates regularly. Furthermore, 5 years are long period, then variable pricing is the most appropriate method to achieve value for money and control budget.

A contract for window cleaning during the next three months is a short-term service contract, fixed price is the most suitable method.

A contract for the supply of lubricating oil for immediate delivery is an one-off contract, only fixed price is applicable.

A contract for the supply of 100 printing machines to be delivered next month is also an one-off contract.

Reference: CIPS study guide page 172-183

LO 3, AC 3.3