A procurement contract is defined as an agreement where a buyer, in exchange for consideration, gets services and goods from a seller. Most are usually agreements in written form which specify the role and obligation of each of the involved parties. The contents are usually price lists, business provisions, payment information and the applicable legal terms and conditions (Bajari, P., and Tadelis, S. 2011).
People go for procurement contracts when they lack the expertise to carry out a certain job, when one cannot do the job alone and also if resources are procurable outside of your firm for a discounted price. The analysis must be done first to ensure the procurement contract is cost-effective before going through with it.
There are different types of procurement contracts used in project management. The first one is the Fixed-Price contract or the lump-sum contract. It is used when the scope of work has no uncertainty. The seller is usually bound by contract to complete the task within the allocated time using the allocated resources. It has an advantage in that both parties know the work scope and cos before the work starts. The downside is that the cost of change in the scope is usually very steep.
The second type is the Firm Fixed-Price Contract (FFP), which is the simplest. The fee is usually fixed, and therefore any cost increments are usually catered for by the bad performer, usually the seller. It is used in government contracts due to its ease of float on the market. Another downside is that it provides an opportunity for a dispute between buyer and seller if the scope is not clear.
The third type is the Fixed-Price Incentive Fee Contract (FPIF), whereby the price is fixed but sellers are given additional incentives based on their performance. It lowers the risk that is usually borne by the seller and can be tied to other project metrics such as time, cost and technical performance.
When choosing a procurement contract one should, choose a contract which is most suitable and friendly to their situation.
Bajari, P., & Tadelis, S. (2011). Incentives versus transaction costs: A theory of procurement contracts. Rand journal of Economics (2011): 387-408.
Running Head: Procurement Contracts
1
Discussion:
List three types of procurement contracts and define
what types of projects they would be used on. In addition, explain
how the contract manages risk and who holds the risk in each
example
.
Discussion
should be at least 200
-
300 word
s
APA format
Referenced
Procurement Contracts
A procurement contract is defined as an agreement where
a buyer
, in exch
ange for
consideration, gets
services and goods from a seller. Most are usually agreements in written form
which specify the role and obligation of each of the involved parties. The contents are usually
price lists, business provisions, payment information
and the applicable legal terms and
conditions (Bajari, P., and Tadelis, S. 2011).
People go for procurement contracts when they lack
the expertise
to carry out
a certain
job, when one cannot do the job alone and also
if resources are procurable outside of
your firm
for a discounted price.
The a
nalysis must be done first to ensure the procurement contract is cost
-
effective before going through with it.
There are different types of procurement contracts used in project management. The first
one is the
Fixed
-
Price
contract
or the lump
-
sum contract. It is used when the scope
of
work has
no uncertainty. The seller is usually bound by contract to complete the task within the allocated
time using the allocated resources. It has
an
advantage in that both parties kn
ow the work scope
and cos before the work starts. The downside is that the cost of change in the scope is usually
very steep.
The second type is the Firm Fixed
-
Price Contract (FFP), which is the simplest. The fee is
usually fixed, and therefore any cost in
crements are usually catered for by the bad performer,
usually the seller. It is used in government contracts due to its ease of float on the market.
Another downside is that it provides
an
opportunity for
a
dispute between buyer and seller if the
scope is
not clear.
The third type is the
Fixed
-
Price Incentive Fee Contract (FPIF), whereby the price is
fixed but sellers are given additional incentives based on their performance. It lowers the risk
that is usually borne by the seller and can be tied to other
project metrics such as time, cost and
technical performance.
When choosing a procurement contract one should
,
choose
a contract
which
is most
suitable and friendly to their situation.
Running Head: Procurement Contracts 1
Discussion: List three types of procurement contracts and define
what types of projects they would be used on. In addition, explain
how the contract manages risk and who holds the risk in each
example.
Discussion should be at least 200-300 words
APA format
Referenced
Procurement Contracts
A procurement contract is defined as an agreement where a buyer, in exchange for
consideration, gets services and goods from a seller. Most are usually agreements in written form
which specify the role and obligation of each of the involved parties. The contents are usually
price lists, business provisions, payment information and the applicable legal terms and
conditions (Bajari, P., and Tadelis, S. 2011).
People go for procurement contracts when they lack the expertise to carry out a certain
job, when one cannot do the job alone and also if resources are procurable outside of your firm
for a discounted price. The analysis must be done first to ensure the procurement contract is cost-
effective before going through with it.
There are different types of procurement contracts used in project management. The first
one is the Fixed-Price contract or the lump-sum contract. It is used when the scope of work has
no uncertainty. The seller is usually bound by contract to complete the task within the allocated
time using the allocated resources. It has an advantage in that both parties know the work scope
and cos before the work starts. The downside is that the cost of change in the scope is usually
very steep.
The second type is the Firm Fixed-Price Contract (FFP), which is the simplest. The fee is
usually fixed, and therefore any cost increments are usually catered for by the bad performer,
usually the seller. It is used in government contracts due to its ease of float on the market.
Another downside is that it provides an opportunity for a dispute between buyer and seller if the
scope is not clear.
The third type is the Fixed-Price Incentive Fee Contract (FPIF), whereby the price is
fixed but sellers are given additional incentives based on their performance. It lowers the risk
that is usually borne by the seller and can be tied to other project metrics such as time, cost and
technical performance.
When choosing a procurement contract one should, choose a contract which is most
suitable and friendly to their situation.
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