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Procurement Contract Types | PMP | iZenBridge - Webinar

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.

For more details related to PMP exam or our upcoming PMP events visit https://www.facebook.com/izenbridge

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Procurement Contract Types | PMP | iZenBridge - Webinar

  1. 1. www.izenbridge.com 1Webinar on Contract TypeSaket Bansal, PMPSaket Bansal, PMPProject Management Trainer , iZenBridgeProject Management Trainer , iZenBridge
  2. 2. www.izenbridge.com 2
  3. 3. www.izenbridge.com 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 orresultwww.izenbridge.com 4
  5. 5. www.izenbridge.com 5
  6. 6. www.izenbridge.com 6CostReimbursableFixed PriceContractTime &Material
  7. 7. www.izenbridge.com 7
  8. 8. www.izenbridge.com 8Price and Scope - FixedScope of work clearly definedWork , time , material needed canbe accurately estimatedSeller is at Higher Risk
  9. 9. www.izenbridge.com 9ConstructionProjectsPackageSoftwareImplementationHolidayPackages
  10. 10. www.izenbridge.com 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. www.izenbridge.com 11Fixed Price ContractsFixed PriceIncentive Fee(FPIF)Firm Fixed Price(FFP)Fixed Price withEconomic PriceAdjustment(FP-EPA)
  12. 12. www.izenbridge.com 12 Commonly used Fee is fixed for the Product or Service No Incentives Change increases the costs to the buyer.
  13. 13. www.izenbridge.com 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. www.izenbridge.com 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.
  15. 15. 15www.izenbridge.com
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  17. 17. www.izenbridge.com 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. www.izenbridge.com 18Media Buyingor CampaignCar ServiceSurgery
  19. 19. www.izenbridge.com 19 When scope is uncertain Total cost not known at start of the project Requires more administrative work
  20. 20. www.izenbridge.com 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. www.izenbridge.com 21Cost ReimbursableContractsCost PlusIncentiveFee (CPIF)Cost PlusFixed Fee(CPFF)Cost PlusAward Fee(CPAF)Cost SavingSharingCostReimbursablewith celling
  22. 22. 22www.izenbridge.com
  23. 23. www.izenbridge.com 23
  24. 24. www.izenbridge.com 24The Buyer is responsible forlabor cost at agreed upon rate Hybrid Type of contract havingessence of Fixed price and Costreimbursable
  25. 25. www.izenbridge.com 25ProfessionalServiceStaffAugmentation
  26. 26. www.izenbridge.com 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. www.izenbridge.com 27Type ofContractBuyer Risk Seller RiskFixed Price Low HighConstReimbursementHigh LowTime andMaterialHigh Low
  28. 28. www.izenbridge.com 28LinkedIn CommunityProject Management Professionals Hub - PMPCertification,…http://www.linkedin.com/groups?gid=5063312Facebook Page•http://www.facebook.com/izenbridgeYouTube channel•http://www.youtube.com/izenbridge
  29. 29. www.izenbridge.com 29Saket BansalSaket.Bansal@iZenBridge.comM: +91-9910802561Web: www.iZenBridge.comLinkedIn:www.linkedin.com/in/saketbansalTwitter: Saket_tg