From the course: Project Management Foundations: Procurement

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Contract types

Contract types

From the course: Project Management Foundations: Procurement

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Contract types

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Compensation drives behavior. At least that's what I was told when I was in corporate sales. And since compensation, aka a paycheck, drives sales people's behavior, you can bet it also drives vendors behavior. You see in procurement management, contracts tie what vendors do to how they'll eventually get paid. Because of this, you can expect vendors to perform based on the terms of the contract. This is the power of a well constructed contract. It drives vendor's behavior. So now that you're aware of why contracts motivate vendors, let's look at the different types of contracts you can use. You'll find a list of the pros and cons of each in a handout. First, there are fixed price contracts. These contracts set a fixed price for clearly defined deliverables. They are best used when no significant scope changes are expected. Second, there are cost reimbursable contracts. These contracts reimburse the vendor for their allowable costs and give them a fee on top so they can make a profit…

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