Agreements and Contracts Flashcards
What is an Agreement?
An agreement is any document or communication that defines the intentions of the parties.
Define agreements in regard to projects.
In projects, agreements take the form of contracts or other defined understandings. A contract is a mutually binding agreement that obligates the seller to provide the specified product, service, or result and obligates the buyer to pay for it. There are different types of contracts, some of which fall within a category of fixed-price or cost-reimbursable contracts.
Fixed-price contracts.
This category of contract involves setting a fixed price for a well-defined product, service, or result. Fixed-price contracts include firm fixed price (FFP), fixed-price incentive fee (FPIF), and fixed price with economic price adjustment (FP-EPA), among others
Cost-reimbursable contracts.
This category of contracts involves payments to the seller for actual costs incurred for completing the work plus a fee representing seller profit. These contracts are often used when the project scope is not well defined or is subject to frequent change. Cost-reimbursable contracts include cost plus award fee (CAF), cost plus fixed fee (CPFF), and cost plus incentive fee (CPIF).
Time and materials (T&M).
This contract establishes a fixed rate, but not a precise statement of work. It can be used for staff augmentation, subject matter expertise, or other outside support.
Indefinite delivery indefinite quantity (IDIQ).
An Indefinite delivery indefinite quantity (IDIQ) contract provides for an indefinite quantity of goods or services, with a stated lower and upper limit, and within a fixed time period. These contracts can be used for architectural, engineering, or information technology engagements.
What other agreements are used in project management?
Other types of agreements include memorandum of understanding (MOU), memorandum of agreement (MOA), service level agreement (SLA), basic ordering agreement (BOA), among others.
Pull Communications
Messages that require the interested people to access the information based on their own initiative.
Push Communications
Messages that are sent out to people who need to receive the information.
What contract model will transfer risk to the seller?
Fixed price contract
A fixed-price contract enables the buyer to transfer risk to the seller. [PMBOK7 p191] (Domain: Process, Task 11)
You are managing a complex project that requires a lot of knowledge work. The project’s objectives are known but the scope cannot be articulated in great detail. You need to hire some experts from a consulting firm to help you with some of the knowledge work. Which of the following contracting approaches would you recommend if the customer wants to have full control over scope variation and cost without exposing the supplier to any financial risk?
Team augmentation arrangement with the consulting firm.
NOT Early cancellation option in a fixed-price arrangement.
The fixed-price arrangement, with or without the early cancellation option will introduce financial risk for the supplier. The cost plus arrangement will introduce financial risk for the customer. A team augmentation arrangement with the consulting firm will be the most collaborative contracting approach in this case. [Agile Practice Guide, 1st edition, Page 78] (Domain: Process, Task 11)
