What is Firm Fixed Price, Level of Effort in SAP PSM-GPR - Procurement for Public Sector?

SAP Term: Firm Fixed Price, Level of Effort

• Component: PSM-GPR

• Component Name: Procurement for Public Sector

• Description: A pricing arrangement in which payment by an organization agrees to pay a supplier a fixed price for a specified level of effort, for example, USD 1,000 for eight man hours of consulting.

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• Key Concepts: 
  Firm Fixed Price (FFP) is a type of contract used in the Public Sector Management-Government Procurement (PSM-GPR) component of SAP. It is a type of contract where the buyer agrees to pay a fixed price for goods or services regardless of the actual cost incurred by the seller. The seller assumes all the risk associated with the project and is responsible for any cost overruns. Level of Effort (LOE) is a type of contract used in PSM-GPR that requires the seller to provide a certain amount of effort or resources over a specified period of time. The buyer pays for the resources used, regardless of the actual cost incurred by the seller. 
  
  How to use it: 
  When creating a contract in PSM-GPR, you can choose either FFP or LOE as your contract type. If you choose FFP, you will need to specify a fixed price for the goods or services being purchased. If you choose LOE, you will need to specify the amount of effort or resources required over a specified period of time. 
  
  Tips & Tricks: 
  When selecting a contract type, consider the risks associated with each option. FFP contracts can be beneficial if you are confident that the cost of goods or services will not exceed the fixed price. However, if there is any uncertainty about costs, an LOE contract may be more suitable as it allows for flexibility in terms of cost overruns. 
  
  Related Information: 
  For more information on FFP and LOE contracts in PSM-GPR, please refer to SAP’s official documentation on procurement contracts.