| Plan Purchasing and Acquisition ITTO |
| Inputs | | Tools | | Outputs |
Enterprise Environmental Factors
Organizational Process Assets
Project Scope Statement
Work Breakdown Structure
WBS Dictionary
Project Management Plan
- Risk Register
- Risk Related Contractual Agreements
- Resource Requirements
- Project Schedule
- Activity Cost Estimates
- Cost Baseline | Make or Buy Analysis
Expert Judgment
Contract Types
| Procurement Management Plan
Contract Statement of Work
Make-or-Buy Decisions
Requested Changes
|
Various contract types are tools for “Plan Purchasing and acquisition" process. Which means when you the Project Manager is buying some services or Products for you Project you can use these techniques to negotiate better options for your project. PMI categorizes contracts into 3 types.
Fixed prices contracts: This type of contracts has a fixed total price for the service or Product. Which means the Buyer pays EXACT amount which was agreed at the beginning to the Seller. Incentives and Awards bring little bit variations to Fixed price contracts. Seller bears the risk in fixed price contracts.
Time and Material contracts: These are cusp between FP and CR and have features of both. Work will quoted as per unit price or charges for per hour service and costs for materials will be reimbursed. Sellers and Buyers share the risk.
Cost reimbursable contracts: Buyer will reimburse all costs spent by the seller for the project. This is open ended contract type means seller don’t know the total price of the work at the beginning. So seller bears the risk. Awards, incentives bring variances in this category.
Following diagram shows types of contracts and who bears the risk
FP: Fixed Price
FPI: Fixed Price Incentive: In this type of contract and addition incentive will be given to the seller when he beats the project expectations. Either it can be time, quality or features. So Seller will be motivated to deliver better product in shorter time
FPEPA: Fixed Price Economic Price Adjustment: These types of contracts are used for long term projects. Buyer bears the extra burden of Economic fluctuation which is a risk.
CR: Cost Reimbursable
CPF Cost plus Fee or CPPC “Cost plus Percent of Cost”: These types of contracts are illegal and not permissible for US Govt. In these contracts, Buyer is supposed to reimburse all costs plus will add some additional fee to the seller. So Seller has no motivation to control costs or to deliver the product. Seller’s margin or profit is depending on the costs he puts on the project.
CPFF Cost plus fixed fee: Buyer reimburses all expenses to the seller and adds a fixed fee as a seller’s profit.
CPIF Cost plus Intensive fee: Buyer reimburses all expenses to the seller and adds an incentive for higher.
CPAF Cost plus Award fee: These types of contract are very similar to CPIF, but the award is fixed amount instead of percentage.
Following table shows major difference between above three types of contracts
| | Work | Risk | Term |
| FP | Known | Seller | Short |
| T&M | UnKnown | Both | Short |
| CR | UnKnown | Buyer | Long |