Procurement Contracting: Types of Contracts & Best Practices

Procurement Contracting: Types of Contracts & Best Practices

Procurement contracting is the process of building legally binding agreements between contractors and suppliers in the course of managing a project to obtain needed materials, supplies and services. It is essential for project success due to the need for a steady and managed supply of the stuff needed to execute the project and the need to enter into an agreement to ensure it is delivered on time and on schedule. There are many types of contracts in procurement, but before getting into that, it is important to understand what procurement is and why it is essential to project success. Procurement refers to the techniques, structured methods and means an organization uses to get what it needs at a good price and on schedule, while still building strong relationships with suppliers and vendors. It involves identifying the goods or services needed, researching suppliers, negotiating with them, finalizing a purchase order, and keeping good contract administration records and saving paperwork.

A solid contract is necessary to deliver a successful project. Procurement contracting is important for maximizing profits and keeping businesses soluble in a competitive marketplace. It is a legally binding document between the buyer and seller that defines the relations and protects both of their interests. Parameters include selecting the vendor and product, vetting the vendor, deciding on the terms and conditions, and managing the process through ordering, payment and delivery of the material, supply or service. Types of procurement contracts offer a variety of risks for one party or the other and are suitable for construction projects.

Fixed-price or lump-sum contracts are when the amount paid for the materials, goods or services is set at the time the contract is signed and doesn't change thereafter regardless of external or internal impacts. Cost-reimbursement contracts reimburse vendors for materials and equipment as well as any indirect costs, while time and materials contracts reimburse vendors as if they were a third-party employee of the contractor. These contracts are the most common, straightforward and easy to manage type of contract. The most important details in this text are the key processes and best practices for procurement contracts. These include emphasizing transparency, monitoring progress, identifying identity efficiencies, streamlining the procurement process, and using an online project management tool to reduce costs.

ProjectManager is award-winning software that helps you plan, monitor and report on your project procurement. It also provides an online Gantt chart to manage contracts, allowing you to see the full life cycle of the contract in one place and track all resources and costs associated with it.