Pjm400 Mod5 Discussion Peer Need Assistance With

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Pjm400 Mod5 Discussion Peer Need Assistance With

PJM400 MOD5 Discussion Peer Responses

Please reply to both POST1: and POST2: in at least 250 words. I have included references and the original post only as reference.

Required

Recommended

References

Baily, P., Farmer, D., Crocker, B., Jessop, D., & Jones, D. (2015). Procurement, principles & management (11th ed). United Kingdom: Pearson (Intl) Inc.

Larson, E. W., & Gray, C. F. (2017). Project management: The managerial process (7th ed.). New York, NY: McGraw-Hill.

Project Management Institute [PMI]. (2017). A guide to the project management body of knowledge (PMBOK® Guide) (6th ed.). Newton Square, PA: PMI Publications.

Original post:

Consider the three contract types of Fixed-Price, Cost-Reimbursement, and Time and Material contracts in procurement management.

  1. What are the main characteristics of each of the above contracts?
  2. Compare (similarities) and contrast (differences) the distinct procurement application of each contract type

POST1:

A
contract is a binding arrangement between a buyer and a seller, which is
the significant part of the buyer and seller connection as it delivers a
structure for how they will work with each other. Procurement contract
is an agreement between two or more parties to supply goods or
services. It’s important to select the right type of contract that
offers the greatest value for time and money, which can protect
companies from project from risks (Usmani, 2020). If not used
accurately, it can cost more money for a company in the end.. Below is a
list of the three different contract types in procurement.

Three Contract Types and Their Main Characteristics

  • Fixed-Price: This is a lump-sum contract which can be
    used when the scope of the work is fixed and the requests are clear.
    Once the contract is signed, the seller is contractually bound to
    complete the task within the agreed price and time (Usmani, 2020). This
    contract cannot be re-negotiated unless the scope of the work is
    altered. Here are three categories of the Fixed-Price contracts:

    1. Firm-Fixed-Price contract (FFP) – Most frequently used, the vendor must finish the work within a settled amount of money and time.
    2. Fixed Price Incentive Fee contract (FPIF) – This fixed-price
      arrangement gives the buyer and seller some flexibility in that it
      allows for deviation from performance, with financial incentives tied to
      achieving agreed-upon metrics (PMI, 2017).
    3. Fixed Price with Economic Price Adjustment Contract (FP-EPA) – This is used when multi-year since this contract has a distinct provision that protects the vendor from price increases.
  • Cost-Reimbursement: Also known as Cost Disbursable
    contract, the vendor is refunded for finished work plus a payment
    demonstrating their revenue. Most sellers are able to take advantage of
    this contract when they complete the project earlier than the expected
    date or when they save on expenses. Cost-reimbursement contracts are to
    be used only in those instances in which there is uncertainty about
    what is required to produce a product (Kim, Roberts, & Brown,
    2016). Here are three categories of the Cost-Reimbursement contracts
    (PMI, 2017):

    1. Cost Plus Fixed Fee (CPFF) – The seller is reimbursed for all
      allowable costs for performing the contract work and receives a
      fixed-fee payment calculated as a percentage of the initial estimated
      project costs.
    2. Cost Plus Incentive Fee (CPIF) – The seller is reimbursed for all
      allowable costs for performing the contract work and receives a
      predetermined incentive fee based on achieving certain performance
      objectives as set forth in the contract.
    3. Cost Plus Award Fee (CPAF) – The seller is reimbursed for all
      legitimate costs, but the majority of the fee is earned based on the
      satisfaction of certain broad subjective performance criteria that are
      defined and incorporated into the contract.
  • Time and Material: This is a mixture of both the
    Fixed-Price and Cost Reimbursement contract, where both share the same
    risks. You use a Time and Materials contract when the deliverable is
    “labor hours,” where the project manager will state the required
    qualifications and experience to the seller who will provide the staff
    (Usmani, 2020).

Compare and Contrast the Distinct Procurement Application of each Contract

Similarities: Selecting the appropriate
contract form will help ensure your company’s next project has the best
chance of success has the best chance of finishing within the project’s
budget, and serves overall company objectives while mitigating the risks
and eliminating unneeded expenses (Concord, 2020).

Differences:

  • Fixed-Price Contract: This is used when the scope of the project is fixed and the requests are clear.
  • Cost-Reimbursement: If the scope of a project is uncertain or likely
    to change, this type of contract can be best used for keeping everyone
    on schedule and under budget (Concord, 2020).
  • Time and Material: This is frequently used when the seller delivers
    the work, and the risk is equally dispersed to the buyer and seller.
    This type of contract is typically used to hire an expert or other
    outside vendors (Concord, 2020).

-Venus

References:

Concord. (2020). Contract Management 101 – Procurement Contracts.
Retrieved from
https://www.concordnow.com/blog/procurement-contra…

Kim, Y. W., Roberts, A., & Brown, T. (2016). Impact of Product
Characteristics and Market Conditions on Contract Type: Use of
Fixed-Price Versus Cost-Reimbursement Contracts in the U.S. Department
of Defense. Public Performance & Management Review, 39(4), 783–813.

Project Management Institute (PMI). (2017). A guide to the project management body of knowledge (PMBOK® Guide) (6th ed.). Newton Square, PA: PMI Publications.

Usmani, F. (2020). Types of Procurement Contracts used in Project
Management. Retrieved from
https://pmstudycircle.com/2013/12/types-of-procure…

POST2:

Purchasing contracts are a legal agreement for the procurement of any goods or services that an entity may need (Allen, Herring, Moody, & Williams, 2015)
Various types of these contracts allow project owners to tailor the
agreement to meet the needs of their agreement. The agreement type that I
am most familiar with is a fixed-price contract. This is the most
suitable contract for agreements where the variables of scope are all
known and clearly identified before the agreement is made. In my case I
worked for a contractor that provided uniforms. The items were known,
the quantity was clear and communicated, and the price was proposed and
agreed upon. Another contract type that I have experience with is a
cost-reimbursement contract. This is a contract where there are agreed
perimeters but variables that don’t have absolutes. Currently I work for
a UAV manufacturer that designs and manufactures many custom built
planes. For contracts that are custom or R&D based we have agreed
upon timeframes or cost ceilings, but the specifics of material or labor
can’t be identified until after the fact. So operating under these
contracts out engineers will “clock -in” to a project. work on design or
build, and “clock-out” when they are done with the work. Because the
labor is an unknown variable the price is not fixed. A T&M contract
is the hybrid of these two types, very similarly to the
cost-reimbursement contract there are unidentifiable variables; however,
there are also absolutes that can be agreed upon beforehand. This is a
more specific type of contract that can be tailored to the needs of the
buyer or seller.

Allen, M., Herring, K., Moody, J., & Williams, C. (2015). Project procurement: Impact of contract incentives and penalties. International Journal of Global Business, 8(2),
1-26. Retrieved from
https://csuglobal.idm.oclc.org/login?url=https://s…

Project Management Institute (PMI). (2017). A guide to the project management body of knowledge (PMBOK® Guide) (6th ed.). Newton Square, PA: PMI Publications.