Project Contract Management
A contract is a legal accord between two or more people for an exchange of goods or services. There are different types of project management contracts that are agreed upon in project management. A fixed price or lump sum contract is a kind of agreement that ensures the performance of work, supply of goods or labor at a given time. It defines the expectations of two parties involved. The advantage of this kind of contract is that it gives both parties a sense of certainty by clearly defining the future course. The disadvantage of these contracts is that they are usually short-term. Some Fixed Price contracts specify time and materials to determine the costs of changed orders.
Cost Plus Fixed Fee (CPFF or sometimes just Cost Plus) is a kind of contract that shifts risk factor the owner but also allowing him/her a fair degree of flexibility. Under this contract, the profit of contractor is at stake which makes him try and minimize cost/duration to yield a higher proportional profit margin. This kind of contract is usually applied to projects that involve greater risk factor and uncertainty. It disallows the contractors to come up with high bids. The "fixed fee" is normally a percentage of estimated costs and the contractor is compensated for other allowable costs.
Cost Plus Percentage of Costs (CPPC) is quite similar to CPFF with the exception that it does not put equal risk factor on contractor whose fee is calculated on a percentage of actual costs. Generally, contractors find kind of contract as a better option because it involves less risk. However, this contract is not allowed in the case of federal government contracts.
Cost Plus Incentive Fee (CPIF) is a kind of contract that offers incentive fee for better performance. An additional fee is paid for beating a target. Owners and contractors share incentive fee which is calculated as a percentage of savings. However, once the target is missed it may be discouraging for contractors. The reverse side of incentive fees is liquidated damages.
CPM/PERT or Network Analysis as the technique is sometimes called, developed along two parallel courses, one industrial and the other military. These techniques have six steps in common to determine the probability of completing a project on a given date using these techniques:
- Define the Project and all of its significant activities or tasks. The Project (made up of several tasks) should have only a single start activity and a single finish activity.
- Develop the relationships among the activities. Decide which activities must precede and which must follow others.
- Draw the "Network" connecting all the activities. Each Activity should have unique event numbers. Dummy arrows are used where required to avoid giving the same numbering to two activities.
- Assign time and/or cost estimates to each activity
- Compute the longest time path through the network. This is called the critical path.
- Use the Network to help plan, schedule, monitor and control the project.