Advantages of Contract Account
The followings are the advantages of contract account.
1. Work can be completed without any delay.
2. A contractor can find the total cost of the contract, cost per each element and the amount of profit available from each contract.
3. There is no possibility of incurring loss since all the costs incurred are recovered from the contractee.
4. If the value of a contract is heavy, the cost plus contract method is usually adopted.
5. The work of tenders and quotations is simplified.
6. The contractee can exercise effective control on the performance of the contract by having retention money.
7. The contractee gets the benefits in the case of declining prices by incorporating de-escalation clause.
8. The contractor gets the benefits in the case of increasing prices by incorporating escalation clause.
9. It assumes a fixed percentage of profit to the contractor.
10. The benefit of social justice is available to both contractor and contractee.
Disadvantages of Contract Account
The followings are the disadvantages of contract account.
1. The contract account is not reflecting the efficiency of the contractor.
2. The contractee is affected under the cost plus contract. The contractor does not care about the amount of expenses if he assumes work under cost plus contract.
3. In the case of fixed contract, the contractor gets maximum advantages due to favorable market conditions.
4. Disputes and differences often arise between the contractors and the contractees in many matters.
5. If profit percentage is fixed, the contractor does not care about the quality in the performance of the contract.
6. The contractee has to pay for all the inefficiency of the contractor.
7. The speed in the performance of a contract is based on the carefulness of the contractor.