When procuring services and materials, the project manager will be required to produce contracts that do a number of jobs. These include:
- Setting out the terms of quality and cost
- Setting out the timetable for completion/delivery
- Producing a list of allowable exceptions and penalties
In project management, there are several different type of contracts that may be agreed between parties.. Here are seven contract types that you will use as a project manager:
- Fixed price
This is a standard contract type written when a supplier of gods or services provides those goods or services for a fixed price.
- Cost reimbursable
The supplier of goods or services will be paid all their costs plus a fixed fee.
- Schedule of rates
Also known as a time and materials contract, this type of contract will cover agreed rates for an agreed period of time.
- Managing contractor
This covers a supplier who accepts the project management services on behalf of the project manager.
The supplier will deliver a viable installation to the project manager/principal so that it can be used to conduct the agreed business.
- BOOT (Build Own Operator (Transfer))
This type of contract covers structured financing for the delivery of public infrastructure.
This type of contract is used for high risk projects where there is a high degree of uncertainty. This contract requires all parties to accept a portion of the project risk as well as share in its rewards.
When should a project manager use different contract types?
There are a number of factors which will impact the project manager’s decision on which contract is used. These include the parties to the contract, terms, and perceived risks as well as the following four contract critical factors:
- The uncertainty of the work required
- Which party assumes the greater risk associated with the project task
- The importance of timing of tasks in the context of the complete project
- The requirement for the project manager to fix costs