Procurement contract type is an important PMP topic. It is one such topic that which forms the base for procurement knowledge areas The webinar on Procurement Contract Type is a base that forms the relationship between the buyer and the seller. This is a formal agreement unlike any other verbal agreement it has to be documented with precise details. Three types of Procurement Contract Type are discussed with examples. Pros and cons of each contract type are given so as to give a clear idea of what all is involved while making the legal agreement. For more details related to PMP exam or our upcoming PMP events visit https://www.facebook.com/izenbridge

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Webinar on Contract Type
Saket Bansal, PMPSaket Bansal, PMP
Project Management Trainer , iZenBridgeProject Management Trainer , iZenBridge

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Buyer Seller
• Written document
• Work in measureable terms
• Enforceable by law

4.  Creates Buyer Seller Relationship
 Legally enforceable
 Should be formally written
 Should explicitly describe the goods , service or
result
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Cost
Reimbursable
Fixed Price
Contract
Time &
Material

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Price and Scope - Fixed
Scope of work clearly defined
Work , time , material needed can
be accurately estimated
Seller is at Higher Risk

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Construction
Projects
Package
Software
Implementation
Holiday
Packages

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Pros / Cons Buyer Seller
• Easier to manage
• Easier to budget
• Easier to budget
Income
• Requires explicit
statement of work
• If material / labor
rate decreases
buyer does not
get the benefit
• Requires strict
cost control
• Require strict
contract change
management
• If market price
increase , seller
price does not
increase

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Fixed Price Contracts
Fixed Price
Incentive Fee
(FPIF)
Firm Fixed Price
(FFP)
Fixed Price with
Economic Price
Adjustment
(FP-EPA)

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 Commonly used
 Fee is fixed for the Product or Service
 No Incentives
 Change increases the costs to the buyer.

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 Incentives and Bonus to the sellers
based on performance targets
 Motive sellers for better performance
 It is Firm Fixed Price Contract with
Incentive attached.

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Price can be adjusted based on some agreed
parameters like
 Inflation rate
 Currency rate
 Oil
Metal Index
Best suited for projects where period spans
for number of years.

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Seller get the actual cost incurred plus
seller’s profit
The Type of cost reimburse are spelled out
in contract
Seller’s profit could be fixed or percentage
of actual cost

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Media Buying
or Campaign
Car Service
Surgery

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 When scope is uncertain
 Total cost not known at start of the project
 Requires more administrative work

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Pros / Cons Buyer Seller
•More Flexible for changing
market need
• Less Rigorous
Change Control
• The seller has no incentive to
keep cost low
• More difficult to budget
• Rigorous contract
management
• Rigorous Internal Change
Control
• High level of
transparency
• Require regular
communication
especially on Cost
Variance

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Cost Reimbursable
Contracts
Cost Plus
Incentive
Fee (CPIF)
Cost Plus
Fixed Fee
(CPFF)
Cost Plus
Award Fee
(CPAF)
Cost Saving
Sharing
Cost
Reimbursable
with celling

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The Buyer is responsible for
labor cost at agreed upon rate
 Hybrid Type of contract having
essence of Fixed price and Cost
reimbursable

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Professional
Service
Staff
Augmentation

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Pros / Cons Buyer Seller
• More Transparency • Less Rigor
Change Control
• Inefficient input may
spend more hours
• Difficult to estimate
budget
• Milestones needs to
be managed closely
• Require regular
communication
with buyer

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Type of
Contract
Buyer Risk Seller Risk
Fixed Price Low High
Const
Reimburseme
nt
High Low
Time and
Material
High Low

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LinkedIn Community
Project Management Professionals Hub - PMP
Certification,…
http://www.linkedin.com/groups?gid=5063312
Facebook Page
•http://www.facebook.com/izenbridge
YouTube channel
•http://www.youtube.com/izenbridge

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Saket Bansal
Saket.Bansal@iZenBridge.com
M: +91-9910802561
Web: www.iZenBridge.com
LinkedIn:
www.linkedin.com/in/saketbansal
Twitter: Saket_tg