Types of Contracts

SPM-->>

Types of Contracts:-

• A contract is a document signed by the buyer and seller that defines the terms and conditions of the buyer-seller relationship.
• legally-binding agreement that obligates the seller to provide specific products, services or even results.
• Defines terms and conditions or such things as responsibilities and authorities, technical and project management approaches, proprietary rights, financing, schedule, payments, quality requirements, & prices. 

3 types of Procurement-type contracts:- (FCT)
1. Fixed-price or Lump-sum contracts
2. Cost-reimbursable contracts.
3. Time and Material contracts

1. Fixed Price or Lump-sum contracts:-

• A total or fixed price is negotiated or set as the final price for a specific product or service.
• It may include incentives for meeting certain objects or penalties if those objectives aren't met.

2. Cost-reimburseable contracts:-

• Payment/Reimbursement is made to seller to cover seller's actual costs:- Direct costs(direct labours, materials etc) & Indirect costs(admin. salaries, rent, utilities, insurance etc)
• Also include incentives for meeting specific objectives or penalties and specific objectives aren't met.

a) Cost-plus-fee(CPF) or cost-plus-percentage of Cost(CPPC):-

• Seller is paid for the costs incurred in performing the work as well as a fee based on an agreed upon percentage of costs. 
• Unless the 2nd party is someone you can trust, you might want to take precautions such as getting the estimates in writing before the repair work begins otherwise 2nd party can increase fees.

b) Cost-plus-fixed-fee(CPFF):-

• Seller is reimbursed for the total direct/indirect costs of performing the work, but receives a fixed amount.
• Fixed amount does not change unless the scope changes.

c) Cost-plus-incentive-fee(CPIF):-
Seller is reimbursed for costs incurred in doing the work and received a pre-determined fee plus an incentive bonus for meeting certain objectives.

3. Time and Materials contracts:- 

• Hybrid of cost-reimbursable and fixed-price contracts
• Buyer pays the seller for both the time and materials required to complete the work.