Project procurement management involves selecting the right contract type and administering it effectively. This section covers various contract types, from fixed-price to cost-reimbursable, and their suitability for different project scenarios.

Contract administration is crucial for managing buyer-seller relationships. It includes monitoring performance, controlling changes, and handling payments. Effective contract management ensures smooth project execution and helps resolve disputes when they arise.

Contract Types

Fixed-Price and Cost-Reimbursable Contracts

• Fixed-price contracts establish a set price for specific work or deliverables
  • Seller assumes most of the risk for cost overruns
  • Includes firm fixed price (FFP), fixed price with economic adjustment (FPEA), and fixed price incentive fee (FPIF) contracts
• Cost-reimbursable contracts pay the seller for actual costs incurred plus a fee
  • Buyer assumes more risk for cost overruns
  • Includes cost plus fixed fee (CPFF), cost plus incentive fee (CPIF), and cost plus award fee (CPAF) contracts
• Fixed-price contracts work well for well-defined projects with low risk (construction of a standard office building)
• Cost-reimbursable contracts suit projects with higher uncertainty or risk (research and development projects)

Time and Materials Contracts

• Time and materials (T&M) contracts combine aspects of both fixed-price and cost-reimbursable contracts
• Buyer pays the seller a fixed rate per unit of time (hourly rate) plus the cost of materials
• Often used for staff augmentation, architecture, or engineering services
• T&M contracts carry higher risk for buyers due to potential for cost overruns
• Typically include a not-to-exceed clause to limit total contract value
• Require close monitoring and management to control costs and ensure progress

Contract Administration

Contract Monitoring and Change Control

• Contract administration involves managing the relationship between buyer and seller
• Includes monitoring contract performance, documenting communications, and managing changes
• Change control process for contracts:
  • Identify proposed changes
  • Review and analyze impact
  • Negotiate changes with seller
  • Update contract documents
  • Communicate changes to stakeholders
• Ensures all parties adhere to contract terms and conditions
• Addresses issues or disputes that may arise during contract execution

Performance Reporting and Payment Systems

• Performance reporting tracks progress against contract requirements and deliverables
  • Includes regular status updates, milestone reviews, and quality assessments
  • Helps identify potential issues or risks early in the contract lifecycle
• Payment systems manage the financial aspects of the contract
  • Fixed-price contracts often use milestone-based payments
  • Cost-reimbursable contracts typically require detailed expense reporting and regular invoicing
  • T&M contracts need systems to track time and materials used
• Payment terms should align with contract type and project needs
• May include incentives or penalties based on performance metrics

Contract Management

Claims Administration and Dispute Resolution

• Claims administration handles formal requests for additional compensation or time extensions
  • Requires thorough documentation of events leading to the claim
  • Involves negotiation and potentially legal proceedings
• Dispute resolution processes should be defined in the contract
  • May include negotiation, mediation, arbitration, or litigation
• Proactive communication and issue management can help prevent claims and disputes
• Claims may arise from changes in scope, delays, or unforeseen circumstances

Records Management System

• Records management system organizes and maintains all contract-related documentation
  • Includes contract documents, change orders, correspondence, and performance reports
  • Ensures compliance with legal and regulatory requirements
  • Supports audit trails and contract closeout processes
• Electronic document management systems streamline record-keeping and improve accessibility
• Proper records management:
  • Facilitates contract administration and dispute resolution
  • Provides historical data for future contract planning and risk assessment
  • Supports knowledge transfer and organizational learning