Using Contracts in the Project Management Context – Part 2

Four lesser used contracts for the project manager

In my last blog, I began looking at the types of contracts used in the project management context. You might remember the project management contracts we looked at were:

  • Fixed price
  • Cost reimbursable
  • Time and materials

To round-off the types of project management contracts used by the project manager, we’re going to take a look at four lesser used contracts.

The managing contractor contract

When a project manager accepts the role of managing contractor, he or she is contracting to administer and oversee a complete project. This will involve managing sub-contractors, perhaps suppliers, and other connected people supplying goods and services.

A major benefit of this type of contract is that the project manager becomes involved early, and is generally used when a fixed price contract would be too restrictive (perhaps there are too many uncertainties connected to the project).

This type of project management contract generally operates in two stages: the first is planning and the second is delivery. The master contractor sub-contracts on an open book basis, with the owner having the ultimate say on selection.

The turnkey contract

This is a single price, delivered state contract. It is very similar to a fixed price contract, except the owner is generally left out of the project management process, with the project manager making all decisions. Effectively the project manager owns the project until completion, and so is incentivised to finish quickly, while the owner (perhaps inexperienced) does not have to make difficult decisions. However, this loss of control may not suit all owners.

The build/own/operate/transfer contract

Typically used for complex long-term projects, the company that builds the project then owns it and operates before handing over ownership and operation. This type of contract is commonplace in government infrastructure projects. For example, a bridge or tunnel is built and operated by a company contracted by the government. The costs of build are recouped, before the project is then handed over and operation transferred.

The alliance contract

An alliance contract enables the client and the contracted company to bring their own individual skillsets to that table in largescale and complex projects. This often requires two companies that might otherwise be considered as competitors. Advantages include better teamwork and innovation, and reduced costs. Both parties share in the benefits and financial rewards upon completion.

Across the two parts of this series about project management contracts, we’ve looked at the major contract types used by project managers. The important thing to remember is that each has advantages and disadvantages, and is useful for different types of projects and needs.  Employing the right type is central to ensuring that the project achieves its goals.

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