** Special announcement: Sign-up for my free PMP course now > http://bit.ly/freepmpcourse This presentation talks about different types of contracts used in project. This topic is part of PMBOK (Project Human Resources Management knowledge area) and is helpful in your preparation for PMP or CAPM certification exams. Or you can use this to understand more about project management.

1. A guide to passing PMP® exam! series..
All About Contracts!
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3. How many types of Contracts?
• Fixed Price
• Cost Reimbursable
• Time & Material

4. Fixed-Price Contract

5. The basic version of Fixed Price contract
involves buyer paying a fixed sum to the
seller for producing a product or service.
Variations of this contract involve paying
additional money based on certain criteria.
If initial estimates are found to be incorrect
then seller assumes all additional cost.
This type of contract is mostly favored by
the buyers, not many sellers would like
this.

6. What happens to the contract when
there is a change in scope midway
of the project?
You analyze impact on schedule and
deliverables, update the contract for impact
areas such as scope, acceptance criteria and
delivery dates, rework the price increase (or
decrease) and update the contract with pricing
details.

7. Firm Fixed Price contract (FFP)
This is most commonly used Fixed Price
contract type.
The price of product or service is fixed
upfront and will change only if there is
change in scope - as agreed by both seller
and buyer.
Upon completion of project seller gets paid
the amount written in contract.

8. Fixed Price Incentive Fee Contract
(FPIF)
In this type of Fixed Price contract, seller
gets a chance to make more money if
predetermined performance metrics are
achieved. This incentive is in addition to
the fixed price of the contract.
These performance metrics could be
related to cost, schedule or technical
performance and set by buyer.

9. Fixed Price with Economic Price
Adjustment Contract (FP-EPA)
This is a favored contract type for long
term projects that span years. The price
adjustment comes into play due to factors
such as inflation, cost changes to raw
materials, or changed environmental
conditions under which the project is
carried out.

10. Cost-reimbursable
Contract

11. This is the second type of contract.
Here buyer reimburses all legitimate costs
incurred in carrying out the contract work
by the seller. In addition, buyer pays a fee
which is the profit component of seller.
The fee may be fixed or tied to certain
performance expectations, such as
cost, time, or quality of the deliverables.

12. Cost Plus Fixed Fee Contract
(CPFF)
This is a straight forward case of
reimbursement of costs and a fixed fee.
In some cases this fee could be certain
percentage of the overall cost, subject to a
ceiling limit.

13. Cost Plus Incentive Fee Contract
(CPIF)
Apart from the fixed cost
component, additional incentive fee is
subject to achieving performance
objectives as written in the contract.

14. Cost Plus Award Fee Contract
(FPAF)
This is similar to CPIF type of contract, with
a difference that award fee is subject to
achievement of certain performance
aspects which are subjective, rather than
objective. These may not be clearly
measurable and amount of award fee is
determined by the buyer purely based on
how happy she is with the deliverables.

15. Time and Material
(T&M) Contract

16. This is the third type of contract.
Buyer pays seller for all materials (hardware,
machinery, tools and equipment) and a per unit
rate for the effort spent by the team. This type
of contract is favored when 100% of
requirements cannot be scoped up front. If the
requirements are subjected to changes quite
often where buyer himself is not able to decide
on requirements upfront, this is the contract
type to go.

17. Many new software products are built
using this contract type. Product
requirements evolve based on how end
users use it. For this reason the full value of
contract cannot be determined accurately
up front. Sometimes there are clauses on
the ceiling amount for the material
cost, and a time limit for complete delivery.

18. PMI is a registered trademark and service mark of the Project Management Institute, Inc.
PMP is a registered certification mark of the Project Management Institute, Inc.
PMBOK is a registered trademark of the Project Management Institute, Inc.
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