Contract Type - Fixed Price , T&M and Cost+ - PMP Exam Topic
In this insightful video, we delve deep into the process of determining the contract type during planning and procurement management. We explore the tug-of-war of risk between buyers and sellers and discuss the relationship between risk and different contract types - Fixed Price, Time and Material, and Cost Reimbursable.
We emphasize that the selection of the contract type is not just a function of risk, but more importantly, it is based on the nature of the work involved. We examine how a clear understanding of the work deliverables can guide the decision towards a fixed price contract. This eliminates the potential for disagreements due to misunderstanding of deliverables.
However, when there is a lack of clarity about the work, the focus shifts to either a Cost Plus or Time and Material contract. We differentiate between the two by discussing how Cost Plus contracts are typically chosen for specialized services where the buyer may lack expertise, and Time and Material contracts are opted for when the buyer understands what they need, and simply requires personnel augmentation.
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