PMGT5871 Chap.8 Procurement Planning and Contract Types
Procurement Planning and Contract Types
Anything the team will not produce itself must be procured, including every team and buy decision. This chapter explains why procurement has legal consequences, the golden rules for running a tender and the six essential elements of a contract.
It compares fixed-price, cost-plus and time and materials contracts by scope clarity, risk and the monitoring each demands, describes the statement of work, and completes procurement plan rows for two purchases with very different levels of certainty.
The legal content of this week is examined mainly through scenarios: a tender that over-specifies a product, an agreement signed under pressure, or a purchase with uncertain scope that needs the right contract type. The Week 6 tutorial asks groups to develop a procurement plan for their case-study project, so the method, timing, cost and responsibility for every buy or team item end up in the group plan.
What this chapter covers
- 01
What must be procured
- 02
Procurement law and acting as a legal agent
- 03
Golden rules for running a tender
- 04
Six essential elements of a contract
- 05
Fixed price, cost plus, and time and materials
- 06
The procurement statement of work
- 07
Procurement plan entries
Worked example · free
Choosing contract types for two purchases
- 1Identify the chairs as known scope with low risk.
- 1Recommend fixed price with payment on delivery and a late-supply penalty.
- 1Identify the app support as unclear, changing scope with higher risk.
- 1Recommend cost plus or time and materials with close monitoring by the school.
Key terms
- Cost-plus contract
- A contract that pays the seller all costs incurred plus a fee representing profit.
- Time and materials contract
- A hybrid contract that reimburses costs and charges time at a pre-set rate including the seller's margin.
- Statement of work
- The document defining the scope of supply, including quantity, quality, location, interfaces and constraints.
- Consideration
- The contract element requiring both parties to receive something of value from the agreement.
Procurement Planning and Contract Types FAQ
When is a fixed-price contract the best choice?
When the scope of work is known and risk is low. The buyer must specify the product or service, its scope and its quality requirements precisely, and payments are usually tied to milestones with penalties or rewards for timing and performance.
What are the essential elements of a contract?
The slides list offer and acceptance, consideration, intent to create a legally binding agreement, legal capacity of both parties, legality of object, and free consent without mistake, duress or trickery. Missing any element can make the agreement unenforceable.
What does a procurement plan record for each item?
It records the goods or service, the budgeted cost, the date required, who is responsible, the method of procurement such as a tender or three quotes, the contract type, special conditions, supplier evaluation criteria and the selected supplier.
Why should a tender describe the need rather than the solution?
Over-specifying the solution may stop you accepting an offer that contains a better solution than the one requested, because if you tender for one thing you may not accept an offer for something else, or even for more. Describing the need keeps those options open.
What does a procurement statement of work contain?
It can contain the objectives or purpose, inclusions and exclusions of supply, the quantity required, quality or performance levels, the work location, interfaces including other suppliers, and constraints such as budget, time and resources, and it may refer to specifications or business requirements.
Why does a cost-plus contract need close monitoring?
The seller is paid for all costs incurred plus a fee, so the buyer carries the risk of overruns. Payments are usually made at regular intervals, and incentives tied to cost, schedule and quality targets help, but the buyer must still track the contractor's work and progress closely.
Exam move
Draw the contract spectrum from fixed price through time and materials to cost plus, and annotate it with who carries the cost risk and how much monitoring the buyer must do. Then invent three purchases with different levels of scope certainty and choose a contract for each with a one-line reason.
Learn the six contract elements with one example of a missing element for each, since short-answer items often describe a flawed agreement. Close by writing two complete procurement plan rows and working backwards from the date needed to set the tender timing. Also rehearse the link back to Chapter 7: every team or buy decision must appear as a row in the procurement plan, with its own supplier selection work in the WBS.
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