Software Project Management CS-463

Software Project Management
CS-463
Course Instructor: Dr. Shafaq Mussadiq
Institute of Computing (IOC)
Kohat University of Science & Technology (KUST)
Software Project Management CS-463 Instructor: Dr. Shafaq

Mussadiq Institute of Computing, KUST
Topic: Contracts
Lecture’s Topic
• Contracts
• Types of Contracts
Software Project Management CS-463 Instructor: Dr. Shafaq Mussadiq Institute of Computing, KUST
Topic: Contracts
Contract
• Contracts are legally binding agreements between at least 2 different
legal entities named a buyer and a seller.
• The buyer wishes to buy certain goods or services from a seller.
• The seller, in return for the goods or services provided, expects

monetary or other values to be paid to them.
Topic: Contracts
Contract
• When a buyer and seller agree to work together as mentioned
previously, both sides will have expectation to receive some value
from the other party.
• And both sides also have certain obligations to fulfil towards each
other.
• A legally binding contract will help protect the rights of both sides by
ensuring both sides fulfil their obligations.
• In case of any issues, any of the aggrieved side can take legal
recourse.
Topic: Contracts
Elements of a legally binding contract

• Contract is an elaborated document containing the detailed scope of
work along with all other agreed terms and conditions, stating the
rights and obligations of both sides.
• A legally binding contract will have the following components:
o There must be an offer from one side. The offer must be a genuine offer.
o There must be acceptance from the other side. The acceptance must be a
willing acceptance without any kind of pressure.
o There must be equal exchange of values between both the sides.
o Must be signed by authorized personnel.
o The work in the contract must be legally allowed work. There can’t be a legal
contract for illegal work.
Topic: Contracts
Contract Types
Topic: Contracts
Contract Types
• Three broad categories of contracts
1. Fixed Price Contract (FP)
2. Cost Reimbursable Contract (CR)
3. Time and Material Contract (T&M)
Topic: Contracts

• These are also known as Lump Sum contracts.
• The seller and the buyer agree on a fixed price for the project.
• The seller often accepts a high level of risk in this type of contract.
• The buyer is in the least risk category since the price the seller agreed
to is fixed.
• Be sure this type of contract has fully detailed specifications,
checklists, and project scope statement from the seller side, which
the buyer will use.
Topic: Contracts

• With this type of contract, sellers may try to cut the scope to deliver
the projects on time and within budget.
• If the project is finished on time with the desired quality, the project
is over for that contract.
• However, if the project is delayed and there are cost overruns, then
the seller will absorb all the extra costs.
Topic: Contracts
Types of fixed-price contracts

• Fixed Price Incentive Fee (FPIF)
o Although the price is fixed, the seller is offered a performance-based
incentive. The incentive can be dependent upon one or more project metrics
such as performance, cost, or time.
• Fixed Price Award Fee (FPAF)
o If the performance of the seller exceeds expectations, an additional amount
(i.e., 10% of the total price) will be paid to the seller.
• Fixed Price Economic Price Adjustment (FPEPA)
o The fixed price can be re-determined depending on the market pricing rate.
Topic: Contracts

• Also known as a cost disbursable contract.
• What do you do when the scope of the work is not clear? A fixed-
price contract is out of the question since you are not sure what the
project will require. Here’s where you’d use a cost-reimbursable
contract.
• It is used when the project scope is uncertain, or the project is high
risk.
Topic: Contracts

• The buyer pays all costs, so the buyer bears all the risk.
• Under a cost-reimbursable contract, the seller works for a fixed time
period and raises the bill after finishing the work—a fee that
represents the profits for the contract.
• The fee may be dependent on selected project performance or other
metrics.
• A major drawback of this type of contract is that the seller can raise
an unlimited or unknown amount which the buyer is compelled to
pay. This is why cost reimbursable contracts are rarely used.
Topic: Contracts
Types of cost-reimbursable contracts

• Cost Plus Fee (CPF) or Cost Plus Percentage of Costs (CPPC)
oThe seller will get the total cost they incurred during the project plus
a percentage of the fee over cost; this is always beneficial for the
seller.
• Cost Plus Fixed Fee (CPFF)
oThe seller is paid a fixed amount that is agreed upon before work
commences. The cost incurred on the project is reimbursed on top of
this, regardless of project performance.
Topic: Contracts

• Cost Plus Incentive Fee (CPIF)
oA performance-based incentive fee will be paid to the seller over and
above the actual cost they have incurred on the projects. With this
type of contract, the incentive is a motivating factor for the seller to
meet or exceed the project’s performance metrics.
• Cost Plus Award Fee (CPAF)
oThe seller will get a bonus amount (the award fee) plus the actual cost
incurred on the projects; this type of contract is very similar to a CPIF
contract.
Topic: Contracts

• Cost Plus Fee (CPF) or Cost Plus Percentage of Costs (CPPC)
• Cost Plus Fixed Fee (CPFF)
• Cost Plus Incentive Fee (CPIF)
• Cost Plus Award Fee (CPAF)
Topic: Contracts

• Time and Material contracts are very popular contract type which is used
for regular purchases for standard items.
• Items may include augmenting temporary manpower for the project with
well-defined skills and expertise level. Item also includes standard
materials which may be needed for consumption in the project.
• In T&M contracts, the organization will select some preferred suppliers of
such manpower and materials.
• The vendors will be selected based on their capabilities and experience.
• There will be a negotiated price (or rate) for such supplies. The final price
paid will be for the amount of quantity of such resources consumed or
purchased.
Topic: Contracts

• Also called Unit Price Contracts or Hourly Rate Contracts.
• This type of contract is a hybrid of a cost-reimbursable and fixed-price
contract.
• For example, if the seller spends 1,200 hours on a project at $100 an
hour, the seller will be paid $120,000 by the buyer.
• This type of contract is common for freelancers, and the main
advantage of this contract type is that the seller makes money for
every hour spent working on the project.
Topic: Contracts
Conclusion
• Contracts have legal binding on both sides that are part of a contract.
• As Project Manager, it is your responsibility to enter into the right
kinds of contracts with a variety of service providers to reduce risk
and deliver the project on time.
• You should always consider the right type of contract to provide
optimum value for the time and money spent on the project while
protecting it from as many risks as possible.
Topic: Contracts
Summary
Thank You

Software Project Management CS-463

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Software Project Management CS-463

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Software Project Management

Software Project Management CS-463 Instructor: Dr. Shafaq

• The buyer wishes to buy certain goods or services from a seller.

• The seller, in return for the goods or services provided, expects

Elements of a legally binding contract

1. Fixed Price Contract (FP)

1. Fixed Price Contract (FP)

Types of fixed-price contracts

2. Cost Reimbursable Contract (CR)

2. Cost Reimbursable Contract (CR)

Types of cost-reimbursable contracts

Types of cost-reimbursable contracts

Types of cost-reimbursable contracts

3. Time and Material Contract (T&M)

3. Time and Material Contract (T&M)

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