PJM400 MOD7 Discussion post peer responses Please respond to
PJM400 MOD7 Discussion post peer responses Please respond to both POST1: and POST2: in at least 250 words. i have included the original post as reference.Original post:From among the required or recommended readings and at least one credible, peer-reviewed outside source, answer the following.Why do contracts include incentives?When is it best touse an incentive (identify a minimum of two specific circumstancesunder which the use of incentive elements in the contracts arebeneficial or necessary)?How are contracts used to transfer risk (identify two specific circumstances and provide an example for each)POST1:Contract IncentivesContracts may include incentives. These incentives are intended toreward or punish sellers depending on how they perform (Baily, Farmer,Crocker, Jessop, & Jones, 2015). Sellers are rewarded with anincentive if their costs are reduced and/or performance is improved. Incontrast, sellers would be punished is their costs were increasedand/or their performance worsened. These incentives encourage sellersto manage their performance and complete the contracts. Using IncentivesIt can be beneficial to use incentives in contracts under certaincircumstances. These circumstances include the following situations:Amazon, Walmart, and CVS are including bonuses and temporary payhikes in their employment contracts to retain current employees and hirenew employees. (See links below references)A construction company enters into a Fixed-price Incentive contractto build a large, multi-phase project. The company would be paid a fixedprice for each phase of the project. It would also receive anincentive award if they met the incentive terms (under budget, earlycompletion, etc.) for the phase (Eriksson, 2017). Using Contracts to Transfer RiskContracts can be used to transfer risk. There are several ways inwhich risks can be transferred. Two of these ways include the use of anindemnification clause and the use of a contract breach. CFI EducationInc (2020 states that an indemnification clause ensures that potentiallosses will be compensated by the opposing party. In comparison, acontract breach occurs when one party breaches the contract due tonon-justifiable reasons. If this occurs, the risk and related costs aretransferred to the offending party (CFI Education Inc, 2020). ExamplesPCL Construction may include an indemnity clause in the contractwhich indemnifies the company from the responsibility for loss or damagecaused by contractors during the project.AAA Maintenance Co. does not maintain the outside of the BBB and aclient is injured due to the lack of maintenance. Due to a breach ofcontract, AAA Maintenance Co. would be responsible for the risk and anyrelated costs. ReferencesBaily, P., Farmer, D., Crocker, B., Jessop, D., & Jones, D. (2015). Procurement, principles, & management (11th ed.). United Kingdom: Pearson (Intl) Inc. Hardback ISBN: 978111813009CFI Education Inc. (2020). Risk transfer. Retrieved fromhttps://corporatefinanceinstitute.com/resources/kn…Eriksson, P. E. (2017). Procurement strategies for enhancing exploration and exploitation in construction projects. Journal of Financial Management of Property and Construction, 22(2), 211-230. doi:http://dx.doi.org.csuglobal.idm.oclc.org/10.1108/J…Links:Target, Amazon, and Walmart:https://www.cnbc.com/2020/03/20/target-pays-bonuses-increases-pay-by-2-an-hour-as-coronavirus-causes-surge-in-shopping.html (Links to an external site.)https://www.cnbc.com/2020/03/16/amazon-to-hire-100000-warehouse-and-delivery-workers.html (Links to an external site.)https://www.cnbc.com/2020/03/19/walmart-announces-special-cash-bonuses-for-hourly-associates-during-national-health-crisis.html (Links to an external site.)Contracts in the time of coronavirus: Force majeure and frustration:https://www.citmagazine.com/article/1677928/contracts-time-coronavirus-force-majeure-frustration (Links to an external site.)Edited by Marybeth Dunlap on Mar 23 at 11:06amPOST2:Why do contracts include incentives?Contracts will include incentives to either secure a new businessrelationship or maintain and improve an existing one(Kelly&Yang.2017.). These incentives have the ability to encouragebetter performance. However, poor performance can lead to incentivesbeing taken away and the supplier or organization being penalized. Toput it into terms that I can understand better, a running back in theNFL will have a base salary provided that he makes the team. Based onhis position he is expected to preform at a very high level as he isplaying a position that generally scores numerous times a season. Theincentives in his contract are usually based on the number of times hescores and the number of rushing yards he totals during the season. Moretouchdowns means more commas and zeros added to his pay. This usuallyleads to a higher paid contract the following season. When is it best to use incentives?It is best to use incentives when as soon as the desired outcome isproduced or the goal has been reached. The longer a group ororganization must wait for their anticipated incentive the more themomentum and excitement is lost for any future projects. NFL players performance during the seasonWhen a sub-contractor completes the services that are required a head of time. How are contracts used to transfer risk?Risk transfer involves passing the risk to a third party. The risk isstill there it just gets transferred to a third party to manage.Examples of contracts being used to transfer risk would be things likeproperty insurance, or Fixed price contracts.ReferenceKelly, C., & Yang, J. (2015). Improving the bottom line.Internal Auditor, 72(1), 54.
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