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BSYS603 Project Management > (11) Project Contract > Flashcards

(11) Project Contract Flashcards

1
Q

Importance of Relationships (inv..7)

A
  • Investment in relationship prior to the contract is important.
    - Research about the company.
    - Visiting contractor’s site.
    - Socialising with focus.
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2
Q

Importance of Relationships (ong..7)

A
  • Ongoing relationship between the parties.
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3
Q

Importance of Relationships (proc..7)

A

Processes within the contract to nurture the relationship.
- Sitting on joint steering committees and other joint management
processes .
- E.g. sharing office space, regular meeting.

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4
Q

Importance of Relationships (con..7)

A

Contract in the legal jurisdiction of the client.

- Contractor should comply with the legal jurisdiction of the client if possible.

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5
Q

Importance of Relationships (acc..7)

A

Access to mutually agreed moderation or arbitration to avoid going to court.

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6
Q

Importance of Relationships (cou..7)

A

Court action is a last resort action (expensive and slow).

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7
Q

Importance of Relationships (ter..7)

A

Terms of contract.

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8
Q

Tension between contractors and clients.

A 
Contractors
- Maximum fair profit
- Minimum fair scope and quality
Clients
- Maximum scope and quality
- Minimum project cost
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9
Q

Agreeing agendas between contractors and clients (con..)

A

Contractor

  • Good referee
  • Recurring business
  • Be more cost effective
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10
Q

Agreeing agendas between contractors and clients (cli..)

A

Client

  • Less induction overhead for a known contractor
  • Don’t waste time to search for contractors
  • Confidence and Trust in the contractor
  • Cost savings
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11
Q

What is a contract?

A

A voluntary, deliberate, and legally binding agreement between two or more competent parties.

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12
Q

Contracts are usually…

A

Written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy.

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13
Q

5 Conditions for Legal Contracts (1)

A

There must be an offer.

- Offer and acceptance are required.

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14
Q

5 Conditions for Legal Contracts (2)

A

There must be consideration.

- An exchange is required (usually goods for money).

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15
Q

5 Conditions for Legal Contracts (3)

A
  • There must be legal capacity.

- Those entering the contract must be legally able to do so.

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16
Q

5 Conditions for Legal Contracts (4)

A
  • There must be legal purpose.

- The contract must be for something legal.

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17
Q

5 Conditions for Legal Contracts (5)

A
  • There must be intention.

- Both sides should know it’s legally binding.

18
Q

Typical Examples of Contract Breaches.

A
  • Failure to provide services on time or in full.
    • Defective work or goods.
    • Non-payment.
    • Breaches of warranties.
19
Q

How to Prove a Breach of Contract?

A

Every legal argument
takes off from establishing a few things.
- You must verify:
- The contract existed.
- The contract was broken.
- You incurred losses.
- The person or business you’re challenging was responsible for these losses.

20
Q

Contract Types.

A
  1. Fixed Price Contracts (lump sum contracts)

2. Cost Reimbursable Contracts.

21
Q
  1. Fixed Price Contracts
A
  • Firm fixed price (FFP).
  • Fixed price incentive fee (FPIF).
  • Fixed price economic price adjustment (FPEPA).
  • Contractor bears risk.
22
Q

Why does contractor bear risk?

A
  • Since the price is fixed, cost overruns may not be passed on to the client.
23
Q

Firm fixed price (FFP).

A
  • One price is agreed upon for all the work.
    • Preferred by both clients and contractors when there is high level of certainty.
      • Contractor has incentives to reduce costs → client should have an effective monitoring and quality control system
      • Used in training programmes, producing parts to
        specification, etc.
24
Q

Fixed price incentive fee (FPIF).

A
  • The price is fixed with an incentive for meeting a target specified in the contract.
25
Q

Fixed price economic price adjustment (FPEPA).

A
  • Popular where fluctuations in the exchange or interest rate may impact the project.
26
Q
  1. Cost Reimbursable Contracts.
A
  • Cost plus fixed fee (CPFF).
  • Cost plus incentive fee (CPIF).
  • Time and materials (T&M) contracts.
27
Q

Cost plus fixed fee (CPFF).

A
  • Cost plus fixed fee (CPFF).
    • The contractor passes the cost back to the
      client and receives an additional fee.
    • Used for development and test projects.
    • Level of effort is justified because of high technical and cost uncertainty.
28
Q

Client bears risk for CPFF.

A
  • Since all the costs must be reimbursed to the contractor, the client bears the risk of cost overruns.
  • Client must exercise substantial external control over the contractor’s work.
  • Supplier’s cost accounting system must be open to the customer.
29
Q

Cost plus incentive fee (CPIF).

A
  • The contractor passes the cost back to the client and gets an incentive for meeting a target specified in the contract.
  • Client and contractor bears risk.
    - The client bears most of the risk here, but the incentive fee motivates the contractor to keep the costs down.
30
Q

Time and materials (T&M) contracts.

A
  • Mostly used for small amounts of money and when the scope has not been clearly defined.
  • Client bears the risk?
    • The client pays the contractor for all the time and materials the contractor applies to the project.
31
Q

Point of Total Assumption (definition)

A

(PTA) is the point in the contract where a contractor assumes responsibility for all additional costs.

32
Q

Formula of PTA

A

PTA = target cost + (ceiling price - target price) / % of sharing cost overrun

33
Q

Project Partnering

A

Many projects will be undertaken with contractors.

34
Q

Partnering is about..

A

Turning contractual relationships into collaborative teams.

35
Q

Partnering requires…

A

Heavy up-front investments in terms of time and construction of a good working framework.

36
Q

What is vital and important about Project Partnering?

A
  • Top management support.

- The selection of people and long-term commitment to the project.

37
Q

Difficulties of Clients and Contractors in Relationship (clients)

A

Clients.

    - Oppressively monitor contractor’s performance.
    - Challenging each and every request.
38
Q

Difficulties of Clients and Contractors in Relationship (contractors)

A

Contractors.

    - Exploit loopholes in the contract.
    - Manipulating information.
    - Taking advantage of owner ignorance.
39
Q

Partnering rejects…

A
  • The adversarial zero-sum legal contract model which often results in legal action to resolve problems.
40
Q

How to conduct business with other organisation?

A
  • Respect.
  • Trust.
  • Collaboration.
41
Q

Partnership Advantages.

A
  • Improved efficiency.
    • Cost effectiveness.
    • Increased opportunity for innovation.
    • Continuous improvement.
    • Fluid communication.
42
Q

Why Partnerships Fail?

A
  • Senior management give inadequate support or withdraws, for instance:
    - Fail to resolve an escalated decision.
    - Do not support lower manager decisions.
    • Differences in organisational culture.
    • Lack of partnering evaluation procedures.
    • Failure to exploit continuous improvement.
    • 50:50 split of risk and reward can help.

BSYS603 Project Management (12 decks)

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