Procurement and Contract Management

ITM220-202
Submitted to- Kayode Makinde
Submitted By-
Team Members-
Gaganpreet Kaur (A00152428)
Pooja (A00152428)
Sukhpreet Kaur (A00152433)
Harmanpreet Kaur (A00151373)
Vishal Kumar Patel (A00166597)
•In the procurement process,
contracts are essential for outlining
the terms, conditions, and
responsibilities that apply to both the
supplier and the buyer. These
legally binding agreements make
sure that all parties are aware of
their obligations and the terms of the
deal. Different kinds of contracts are
used in procurement to manage
various kinds of connections and
projects.
Types of Contracts

• Fixed Price Contract

• Cost Recovery Contract
• Contracts for Unit Prices
• Time and material Contract
• EPC Contracts
Fixed Price Contract-
This kind of contract has a
definite and predetermined
price. For a predetermined
fee, the seller promises to
provide the listed products or
services. It works best for
projects that have a clear
scope and few scope
changes.
•Advantages of Fixed Price Contract-

• Risk Allocation- Less risk for buyers

• Cost control- Predictable cost
• Project freedom- Flexibility and autonomy

•Disadvantages of Fixed Price Contract-

• Lack of Flexibility- Little room of changes

• Supplier risk- Potential challenges and uncertainties

• Example- : For a fixed sum of $10 million, a government agency contracts with a construction
business to build a bridge. The provider oversees finishing the project within this spending limit.

This Photo by Unknown Author is licensed under CC BY-SA

Cost Recovery Contract

In a contract that allows for

reimbursement of expenses, the
seller is reimbursed for
reasonable expenses by the
buyer, frequently in addition to a
penalty. For projects with
changing or ambiguous
requirements, these contracts
are employed.
•Advantages of cost recovery contract-

•Flexibility: Easier to accommodate scope changes.

•Risk Allocation- More risk for the buyer.

•Disadvantages of cost recovery contract-

•Cost Control: Uncertainty in final costs.

•Potential Overruns: Risk of cost overruns.

•Example- A software development company is hired under a cost-reimbursable

contract where they bill the client for incurred expenses and receive a negotiated fee .

This Photo by Unknown Author is licensed under CC BY-SA

Contracts for Unit Prices

A unit price contract requires the buyer to pay a fixed

amount for each completed task or delivered item. This is
frequently applied in the construction industry, as work
completion units allow for cost calculation.
•Advantages of Contracts of Unit Prices

•Cost Control: Clear cost per unit.

•Flexibility: Suitable for repetitive tasks.

•Disadvantages of Contracts of Units Prices

•Risk Allocation: Moderate risk for both parties.

•Limited Scope Changes: Less adaptable to changes.

•Example- A municipal government, for instance, enters a contract with a construction

firm to pave city streets at a certain rate per square metre of pavement installed. All
materials, labour, and equipment are included in the unit price
Time and Material contract

Fixed-price and cost-reimbursable

contract components are combined in
T&M agreements. The actual hours
worked and materials used are paid
for by the buyer. Projects with
changing or ambiguous requirements
are a good fit for this kind of contract.
•Advantages of time and material
contract

•Flexibility: Suitable for evolving projects.

•Cost Control: Control over hours and materials.

•Disadvantages of time and material

contract

•Risk Allocation: Some risk for both parties.

•Administrative Burden: Requires careful
monitoring.

Example- A consulting firm uses a time and

material contract to provide services at an hourly
rate while also billing for necessary materials
used in the project
EPC Contract

EPC contracts are often used in large-

scale infrastructure projects. They
cover design, procurement of
materials, and construction services.
•Advantages of EPC Contract

• Risk Allocation: The EPC contractor is responsible for design, procurement, and
construction, which minimizes risk for the owne
• Cost Control: EPC contracts often provide fixed or guaranteed maximum prices, giving the
owner predictability in project costs.
• Project Flexibility: EPC contracts usually involve streamlined project management, as one
entity manages all aspects.

Disadvantages of EPC Contract

• Cost Control: EPC contracts may have higher initial costs due to the risk allocation and
guaranteed maximum price.
• Risk Allocation: EPC contracts can deter competition since they require contractors to
assume substantial risk

•Example- The EPC contract clearly outlines the responsibilities of each party and provides a
fixed price for the project. The owner has minimized risk since the EPC contractor is
accountable for any cost overruns or construction delays
References

oboloo.com. (n.d.). What are the Most Common Types of Contract Agreements in
Procurement? [Blog post]. Retrieved from
https://oboloo.com/blog/what-are-the-most-common-types-of-contract-agreements-in-procur
ement
/Concord. (n.d.). Procurement Contracts for Contract Management 101 [Blog post].
Retrieved from
https://www.concordnow.com/blog/procurement-contracts-for-contract-management-101/

Procol. (n.d.). Procurement Contract Types: What You Need to Know [Blog post]. Retrieved
from https://www.procol.io/blog/procurement-contract-types-what-you-need-to-know /