The parties to a contract need to define its terms and conditions ahead of all other things. A proper definition of the terms determines the success or failure of a contract. The parties arriving at a contract must understand the terms from all sides. Therefore, all parties that are negotiation the transactions bound by the contract must find it explicable. Specific administrative controls have to be in place for relating the performance and payment. Besides that, a contract needs to describe the responsibilities and roles of all the parties very clearly.
Likewise, a procurement contract must share an oversight, which is backed by a suitable management plan. Most importantly, the contract management procurement terms may vary depending on their preset objectives. They aren’t governed by any set of rules. A manager needs to pick a procurement contract after considering all the driving factors. This is because the procurement terms determine the structure of the bonding between all parties. The fact that it’s meant for the entire duration of a project often turns it complex. The future may not seem so promising following a wrong decision.
Check Out the Various Types of Procurement Contracts as Mentioned Below:
Fixed Price Contracts
Lump sum contracts are fixed-price contracts. For all services, the service provider and buyer arrive at a fixed price. This is because the buyer doesn’t experience any risk with this type of contract. However, it’s highly risky for a seller. Most importantly, the costs and time involved in a project are more than this fixed price. A fixed-price contract must set the scope of work in details. The expectations of a buyer are highlighted by it against a pre-agreed price. Therefore, the seller must complete the task after signing the contract. On the contrary, he must experience a breach of contract or deliver all goods as decided.
Cost Reimbursable Contract
More easily modifiable or vague scope of a project forces you to consider a Cost Reimbursable contract. This is because the cost-disbursing paperwork is crucial for a high-risk project. Most importantly, a seller creates work for a specific period of time. Thereafter, he charges more for enhancing profit once the work is finished. Therefore, the performance metrics determine the value of profit under these contracts. The overall contract cost isn’t calculated until the job is finished. That’s one reason why only a handful of businesses utilize this contract.
Time and Materials Contracts
Labor is the key deliverable of this type of contract. The seller achieves an hourly rate with it. Besides that, the contractor receives specific hourly rates based on the direct labor cost. Apart from that, a pre-determined add-on or the actual cost of using equipment or materials covers the profits and overheads of a contractor.
Check out the efficient contract terms and ensuring a sound plan:
- Defining Scope: All the areas of opportunity have to be identified and an execution plan has to be in place. Besides that, the responsibilities of all parties should be entirely identifiable in a contract. Most importantly, it must measure and assess the end objectives.
- Contract Management: Developing a plan is essential for managing transactions following a deal. This is because all parties don’t want the contract to be filed and closed. Besides that a timely execution of the contract clauses is important. Most importantly, it needs to abide by the remedial steps and rights till completion.
- Reporting & Controls: The directives must govern controls and report for protecting a transaction. Most importantly, it will secure accountability throughout the entire span. This includes the tenure of warranty, construction, and delivery.
- Sufficient Rights: Most importantly, the terms must include the rights of all parties. The parties are quite motivated by this step. This is because it helps to keep them focused and invested on the returns.
- Competitive Rates: A Contract Management Plan must reflect favorable competitive pricing. The full life-span and all-in cost viewpoint determine such pricing. Therefore, you can meet your specific project objectives by utilizing it.
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A sound contract management plan defines specific roles for all. Specific roles are set for executive leaders, risk assessment dept., legal dept., insurance provider, and the whole supply chain. It lays a strong foundation for the contract and abides by its clauses. A strong CMP forms the basis of an effective procurement contract.