Procurement Contracts

Procurement contracts represent a signed agreement when we engage in a buying-purchase relationship. It outlines the conditions that must and will be fulfilled, ensuring that the end result is exactly how we envisioned and that we are all on the same page. In other words, a procurement contract lays the foundation for establishing a customer-provider partnership while eliminating any ambiguity.

Everything needed! The more details specified, the more chances of avoiding any possible future disputes. The contract should be especially focused on the specifications regarding the transactions. So, here is what you should include in a procurement contract:

• The parties’ contact information;
• Details regarding the product or service that is purchased;
• The delivery date;
• The price for the product or service (if applicable).

1. Fixed Price Contacts

For this type of contract, the cost for the goods or services is established ahead of time and remains the same – regardless of any developments throughout the project. Fixed-price contracts can be implemented for event planning, consulting, services, equipment rental, and acquiring a specific quantity of products. They can also be enforced for project-based services – for example, designing a website. 

But fixed price contracts can, in turn, be classified into three main categories: firm fixed price contracts, fixed price with incentive fee contracts, and fixed price with economical pricing adjustment. 

2. Cost Reimbursement Contracts

Regarding cost reimbursement contracts, the seller provides goods or services and incurs the costs, while the buyer agrees to reimburse the seller for those cases, plus a fee for their services. In other words, the buyer only pays for the actual cost after finishing the work. Even more so, the buyer is required to pay a special fee for the services or goods provided.

Not only that, but in the case of any potential changes, the seller is also responsible for enduring the additional costs that might occur. Because of this, sellers typically tend to include extra fees for any changes beyond the original agreement to mitigate the risks involved. This way, they discourage expensive modifications and, overall, boost their profitability. 

Cost reimbursement contracts are also subdivided into three main categories: cost plus fixed price, cost plus incentive fee, and cost plus award fee. 

3. Time and Material Contracts

Time and material contracts represent the idea that the buyer only pays for the seller’s time and materials cost. Rather than paying a fixed price for the seller’s service, the buyer will only pay for the time they spent on the services and how much the materials cost while using. This type of contract is suitable when it’s challenging to quantify a project’s parameters as it provides more flexibility to make changes if needed. 

Time and Material Contracts are primarily enforced in the case of software development projects, as your vision can constantly change.