Procurement Contract Types | PMP | iZenBridge - Webinar


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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.

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Procurement Contract Types | PMP | iZenBridge - Webinar

  1. 1. 1Webinar on Contract TypeSaket Bansal, PMPSaket Bansal, PMPProject Management Trainer , iZenBridgeProject Management Trainer , iZenBridge
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  3. 3. 3Buyer Seller• Written document• Work in measureable terms• Enforceable by law
  4. 4.  Creates Buyer Seller Relationship Legally enforceable Should be formally written Should explicitly describe the goods , service 4
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  6. 6. 6CostReimbursableFixed PriceContractTime &Material
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  8. 8. 8Price and Scope - FixedScope of work clearly definedWork , time , material needed canbe accurately estimatedSeller is at Higher Risk
  9. 9. 9ConstructionProjectsPackageSoftwareImplementationHolidayPackages
  10. 10. 10Pros / Cons Buyer Seller• Easier to manage• Easier to budget• Easier to budgetIncome• Requires explicitstatement of work• If material / laborrate decreasesbuyer does notget the benefit• Requires strictcost control• Require strictcontract changemanagement• If market priceincrease , sellerprice does notincrease
  11. 11. 11Fixed Price ContractsFixed PriceIncentive Fee(FPIF)Firm Fixed Price(FFP)Fixed Price withEconomic PriceAdjustment(FP-EPA)
  12. 12. 12 Commonly used Fee is fixed for the Product or Service No Incentives Change increases the costs to the buyer.
  13. 13. 13 Incentives and Bonus to the sellersbased on performance targets Motive sellers for better performance It is Firm Fixed Price Contract withIncentive attached.
  14. 14. 14Price can be adjusted based on some agreedparameters like Inflation rate Currency rate OilMetal IndexBest suited for projects where period spansfor number of years.
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  17. 17. 17Seller get the actual cost incurred plusseller’s profitThe Type of cost reimburse are spelled outin contractSeller’s profit could be fixed or percentageof actual cost
  18. 18. 18Media Buyingor CampaignCar ServiceSurgery
  19. 19. 19 When scope is uncertain Total cost not known at start of the project Requires more administrative work
  20. 20. 20Pros / Cons Buyer Seller•More Flexible for changingmarket need• Less RigorousChange Control• The seller has no incentive tokeep cost low• More difficult to budget• Rigorous contractmanagement• Rigorous Internal ChangeControl• High level oftransparency• Require regularcommunicationespecially on CostVariance
  21. 21. 21Cost ReimbursableContractsCost PlusIncentiveFee (CPIF)Cost PlusFixed Fee(CPFF)Cost PlusAward Fee(CPAF)Cost SavingSharingCostReimbursablewith celling
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  24. 24. 24The Buyer is responsible forlabor cost at agreed upon rate Hybrid Type of contract havingessence of Fixed price and Costreimbursable
  25. 25. 25ProfessionalServiceStaffAugmentation
  26. 26. 26Pros / Cons Buyer Seller• More Transparency • Less RigorChange Control• Inefficient input mayspend more hours• Difficult to estimatebudget• Milestones needs tobe managed closely• Require regularcommunicationwith buyer
  27. 27. 27Type ofContractBuyer Risk Seller RiskFixed Price Low HighConstReimbursementHigh LowTime andMaterialHigh Low
  28. 28. 28LinkedIn CommunityProject Management Professionals Hub - PMPCertification,…Facebook Page•YouTube channel•
  29. 29. 29Saket BansalSaket.Bansal@iZenBridge.comM: +91-9910802561Web: Saket_tg