Contracting and Procurement in Project Management College Essay

Contracting and Procurement in Project Management College - Essay Example However, it is also important to understand that the terms of each contract mostly vary from project to project depending upon the requirements of the each project. These terms largely depend upon the preference for quality, economy, flexibility as well as speed with which agreed terms and conditions of the contract can be delivered. Under these contracts, the allowable costs associated with the contract are identified first as these costs would be major costs to make buying and selling on the agreed terms of the contract. All the costs incurred therefore by the sellers are reimbursed by the buyer in the end according to the agreed terms of the contract. This type of contract can be highly risky for the buyer because the total costs associated with the contract always remain uncertain despite they are being identified. Any cost over-runs has to be borne by the buyer if contract terms go awry and does not remain within the control of either the buyer or the seller. However, on the positive side, scope changes in such kind of contracts are easy to make and buyer can do it anytime he wants however, this may increase the total cost of the contract. As discussed above that the cost reimbursable contracts are highly uncertain therefore contractors have very little ambitions or advantage to produce efficiently and productively. However, such kind of contracts helps contractors or sellers to pass on the increasing costs to the buyer. Such types of contracts are used when there is a greater uncertainty associated with the project and are used for projects which involve large investments being made in early part of its life. There are also sub-types of cost reimbursable contracts. These are: 1) Cost plus Fee are contracts where contractors are not only reimbursed of their total cost incurred but also a certain percentage of the overall cost of the contract. The percentages are decided before entering into the contract and are mostly documented in the contract. 2) Cost plus fixed fee are contract where the whole cost is charged back along with certain agreed fixed fee as the contract completion fee. This fixed fee is often considered as the profit of the seller. (contractmanagement.com, 2007). 3) Cost plus incentive is a type of contract where the buyer not only reimburse the total cost to the seller but also provide a certain amount as an incentive fee for exceeding the performance against the agreed contract terms. Such kind of terms may ensure better performance on the part of the seller as it provide them an added incentive to perform and execute the contract in most efficient way. This type f contract can beneficial to both the buyer and the seller if well written and can be a good alternative to the cost reimbursable contract. Fixed Price Contracts Such types of contracts fix a certain specific fee for the goods and services to be rendered before entering