Contracts

Question 1

What is a contract?

Answer 1

An agreement between 2 or more legally competent parties (legal or natural persons) for a ‘consideration’ (a fee).

Question 2

Explain the difference between Time & Material and Fixed Price contracts?

Answer 2

Fixed price: Fixed amount is set for the complete work where supplier usually charges a fixed premium. Common in software development. Functional spec accuracy and provisions for change control are very important. Supplier takes most for the risk.

Time & Material: More transparent than FP, where payment is based on hours/days worked and expenses incurred. More typical for consultancy. Risk is shared.

Question 3

What are the benefits for the parties of a hybrid contract (first T&M, then Fixed)?

Answer 3

The main benefit is to minimise risk for both parties by first investigating and clarifying requirements and scope after.

Once there is more certainty, they can move to fixed.

Question 4

How do you deal with change requests contractually?

Answer 4

The statement of work should include provisions to accommodate change through a change control mechanism. This specifies how changes are managed, and how they are priced and! scheduled.

Question 5

How is payment typically scheduled?

Answer 5

Typically payment within 30 days of invoice, and if payment is delayed the contractor may terminate the contract or charge surcharge (such as base lending rate + 2%).

Payment for a large project is staged, with payment scheduled to key milestones:
• Initial payment - (on contract signature)
• Interim payment -(on completion of design and functional spec)
• Interim payment - (on delivery of completed system into UAT)
• Interim payment - (on successful completion of UAT)
• Final payment - (payable at end of warranty period)