Project Contract

• Contracts are the agreements between two or more parties used for
establishing business deals and partnerships.
• The specifications vary with the types of contract.
• Different types of contract is used according to the type of work and
the nature of the industry.
Types of contract
▪ Fixed Price/Lump-sum contract:
•The service provider agrees to provide a defined
service for a specific period of time and the client
agrees to pay a fixed amount of money for the
service.
•Main merit is that contractor knows the total project
cost before it commences.
•Biggest demerit is that in case extra cost is incurred, it
will not be compensated.
▪ Unit Price contract:
• In this, each element of the project is looked into
separately with the contractor/client estimating the
cost.
• Bidders are asked to bid each element of the
project.
• Depending upon the bid amounts, the project may
be given to same service provider or to different
service providers for each unit.
▪ Cost Plus contract:
• The services provider is reimbursed for their
machinery, labour and other costs, in addition to
contractor paying an agreed fee to the service
provider.
•The payments may be paid by the contractor at a
certain frequency (such as monthly, quarterly) or by
the end of milestones.
▪ Incentive Contract:
•It is used when there is some level of uncertainty in
the project cost.
•Although there are nearly-accurate estimations, the
technological challenges may impact on the overall
resources as well as the effort.
•This type of contract is common for the projects
involving pilot programs or the project that harness
new technologies.
▪ Retainer (Time and Material) Contract:
• This engagement type is the most risk-free type
where the time and material used for the project are
priced.
•The contractor only requires knowing the time and
material for the project in order to make the
payments. This type of contract has short delivery
cycles, and for each cycle, separate estimates are sent
of the contractor.