Question

Many types of contracts are available to a project management. How will you know which is the right contract to execute for each type of procurement? Referencing the article below, discuss each type of contract and cite an example of an appropriate use of each contract.

Reference:

Usmani, Fahad (2013). Types of Procurement Contracts used in Project Management. PM Study Circle. Retrieved from https://pmstudycircle.com/2013/12/types-of-procurement-contracts-used-in-project-management/

Answer 1

There are three types of Contract as highlighted by article mentioned in the question:

1. Fixed price contract:

It is a contract where price is fixed while entering into the agreement and will be enforce on the same terms and conditions mentioned in the agreement including price and duration of contract.

Example: A enter into a contract with B, for delivery of 100 raw materials on 14 May, 2018 at a price of $ 200.

Now even on 14th May, 2018, the price of raw materials increase, still A will pay $ 200 only, thereby transfering the risk of inflation on B, the seller.

There can be further adjusment into this basic clause referring to subparts of this.

2. Cost Reimbursable Contract

Usually this contract involves the longer duration when the price of the task depends on the progress of the work. This option is best for those kind.

Example - A contracted with B for construction of foot over bridge with a commission of 5 % over the cost.

Now here this takes time say 10 years where the prices would be high adding additional cost to the project and thereby A will reimburse the money over and extra what was fixed.

There can be further adjusment into this basic clause referring to subparts of this.

3. Time and Materials

Here when we need consultants to work for us on contract basis. Here we pay for those labor charges of the people we hire.

Example - Software engineers employed by Google company, sitting in their office but working on payroll on another companies.

Thanks