This document discusses different types of contracts used in project management. It describes contracts as legal agreements between two or more parties. There are two main types of contracts: fixed-price contracts, used when requirements are well-defined, and cost-reimbursable contracts, best used when the scope is expected to change. Specific contract types are defined, including firm fixed price (FFP), fixed price incentive fee (FPIF), cost plus fixed fee (CPFF), and time and material (T&M) contracts.

1. Project Management
Key Concepts

2. Contracts

3. What is it?
Contracts are legal agreement relationships between two or
more parties.
An “Agreement” (e.g. to initiate a project with a charter)
might not involve a Contract, but every contract will involve
an agreement.
Contracts

4. Types of contracts include:
• Fixed-price contracts
• Firm fixed price (FFP)
• Fixed price incentive fee (FPIF)
• Fixed price with economic price adjustments (FPWEA)
• Cost-reimbursable contracts
• Cost plus fixed fee (CPFF)
• Cost plus incentive fee (CPIF)
• Cost plus award fee (CPAF)
• Time and material contracts
Contracts

5. Fixed-price contracts
A fixed total price for a defined product, used when the
requirements are well defined and no significant changes to the
scope are expected.
Contracts

6. Firm fixed price (FFP)
The most commonly used contract type – won’t change
unless scope of works changes.
Fixed price incentive fee (FPIF)
Allows for deviation from performance, with financial
incentives tied to achieving agreed-upon metrics
(usually based on cost, schedule or quality)
Under FPIF contracts, a price ceiling is set, and all costs
above the price ceiling are the responsibility of the
seller.
Contracts

7. Fixed price with economic price adjustments (FPEPA)
A fixed-price contract, but with a special provision allowing for
predefined final adjustments to the contract price due to
changed conditions (e.g. if the performance period spans a
considerable period of years, or if the payments are made in a
different currency).
Contracts

8. Cost-reimbursable contracts
This type of contract involves payments (reimbursements) to
the seller for all legitimate actual costs incurred for completed
work, plus a fee representing seller profit.
Best used if the scope of work is expected to change
significantly during the execution of the contract.
Contracts

9. Types of Cost-reimbursable contract include:
Cost plus fixed fee (CPFF)
The seller is reimbursed for all allowable costs for performing the
contract work and receives a fixed-fee payment calculated as a
percentage of the initial estimated project costs. Fee amounts do not
change unless the project scope changes.
Cost plus incentive fee (CPIF)
The seller is reimbursed for all allowable costs for
performing the contract work and receives a
predetermined incentive fee based on achieving certain
performance objectives as set forth in the contract.
Contracts

10. Cost plus award fee (CPAF) - The seller is reimbursed for all
legitimate costs, but the majority of the fee is earned based
on the satisfaction of certain broad subjective performance
criteria that are defined and incorporated into the contract.
Contracts

11. Time and material contracts (T&M)
A hybrid type of contractual arrangement with aspects
of both cost-reimbursable and fixed-price contracts.
They are often used for staff augmentation,
acquisition of experts, and any outside support when a
precise statement of work cannot be quickly
prescribed.
Contracts