Contract Archives - Project Management Knowledge Hub

What are Agile Contract Types?

When it comes to agile methodology, both the vendor and the customer have to come for an agreed agile contract type prior to the execution of the project. Since agile is defined to be embracing changes, it’s difficult to establish a contract. Both parties are supposed to cooperate with each other in order to deliver value adding features throughout the entire project life-cycle. (The relationship between the customer and the vendor in agile methodology has been defined and stated under ‘Agile Manifesto Principles‘ and ‘Agile Manifesto Values‘) There are few agile contract types defined to be used based on few factors such as the relationship strength between the customer and vendor, etc…

Even though embracing changes has made it difficult for both parties to sign an agreement, there are few contract types that still both parties can agree upon prior to the project execution.

Fixed price, Fixed scope (Fixed time is also preferred)

Under this contract, an agreed budget with a fixed scope is provided (Just like in waterfall). By using agile techniques, project efficiency can be enhanced in order to gain maximum benefits out of the agreed price. This contract is good to use when requirements are stable and the relationship between the customer and the vendor is not stable (Not trusting each other).

Fixed price, Fixed scope (Fixed time is also preferred, but scope can be altered by collaborating with the customer)

The project team works closely with the customer from the beginning to identify the project requirements and priorities. Once the project is started, the project management team has to work on a prioritized list and at the end of a delivery, both parties can discuss whether to change the project direction based on the user needs.

Time and Material

According to this contract, customer has to pay for the work being done. This method / type works better when requirements are not stable / volatile. This is the simplest contract to be signed off if both parties trust each other.

Not To Exceed with Fixed Fee (NTE/FF)

Here, the vendor team is promised with a guaranteed profit margin. Both parties protect each other with the speed of project work being executed (Faster or Slower) and work on unexpected events to drive the project towards success.

Fixed price per function / story point

Initially both parties must agree on the unit of delivery (story points / functions / function points). A fixed price per unit is agreed and a certified functional point auditor is selected and advised to observe the number of units delivered at the end of the project. The customer has the freedom to change the requirement throughout the project and the vendor is encouraged to work efficiently.

Project Procurement Management

What is Project Procurement Management

Project Procurement Management consists of processes that are necessary to purchase or acquire products, results or services required from outside the project team. The self organization can either be the buyer or the seller.

When it comes to procurement management, contract negotiation, management and change control procedures need to be implemented in order to follow a successful procurement plan. The contracts are legal documents that mutually bind both the seller and buyer where seller provide something valuable and buyer is bound to return and pay via monetary terms of other compensating methods. These agreements can be simple or complex depending on the magnitude of the need / requirement.

Subcontracting / Sharing to a 3rd party is also sometimes knows as a risk response strategy under project management. When subcontracting, it means that a part of the project is transferred to a 3rd party which reduces the risk level from the project management team, hence the responsibility of taking care of the risk is already handed over to a third party.

Under the Procurement Management process, there are 4 processes identified by PMBOK 5th edition. They are;

Plan Procurement Management

Procurement Management Plan is about documenting how a project should handle procurement related activities such as the approach of purchasing, identifying potential sellers, etc… Through this process, it reveals whether it’s necessary to purchase or not and if it’s necessary to purchase, how, where, when the purchase should take place, etc…

Conduct Procurements

Under this process, choosing a seller / contractor and awarding a contract occurs. At the time of conducting, both parties need to come to a common legal agreement and proceed with the procurement process. There are few techniques used to select a contractor such as bidder conference where a RFP (Request for Proposal) document is built and shared among a set of contractors, hence they can come up with their proposals for the buyer to select the best choice among them.

Control Procurements

Monitoring and tracking the performance of the contractor is done under this process. While the project progresses, the relationship between the buyer and the seller will need to be maintained. Also if there are any necessary changes that need to be integrated with the already agreed contract, both parties can come under one roof, discuss and do the necessary changes to the contract as well. Through this phase, performance of both parties will be tracked to see whether there are any deviations from the agreed contract.

Close Procurements

This is the final process of procurement management process. Under this phase, both parties will formally and legally close the procurement contract. Once it’s done, contracts will be documented for future reference if any issue or concern is raised.

Below table shows under which Project Management Process Group the above processes are performed.

Initiating	Planning	Executing	Monitoring and Controlling	Closing
No Process Performed	Plan Procurement Management	Conduct Procurement	Control Procurement	Close Procurement

**Please note that each and every individual process mentioned above will be explained further separately.