(August 2012)

Master of Business Administration - MBA Semester 4

Project Management Specialization
PM 0018 Contracts Management in Projects (4 credits)
(Book ID: B1347)
ASSIGNMENT- Set 1
Marks 60
Note: Each Question carries 10 marks. Answer all the questions.

Q1. Explain the different categories of contract.

Answer : Introduction:
In the world of business, contracts are used for establishing business deals and
partnerships. The parties involved in the business engagement decide the type
of the contract.
Usually the type of the contract used for the business engagement varies
depending on the type of the work and the nature of the industry.
The contract is simply an elaborated agreement between two or more parties.
One or more parties may provide products or services in return to something
provided by other parties (client).
The contract type is the key relationship between the parties engaged in the
business and the contract type determines the project risk.

Let' have a look at most widely used contract types.

Fixed Price (Lump Sum)

This is the simplest type of all contracts. The terms are quite straightforward and
easy to understand.

To put in simple, the service provider agrees to provide a defined service for a
specific period of time and the client agrees to pay a fixed amount of money for
the service.

This contract type may define various milestones for the deliveries as well as
KPIs (Key Performance Indicators). In addition, the contractor may have an
acceptance criteria defined for the milestones and the final delivery.
The main advantages of this type of contract is that the contractor knows the
total project cost before the project commences.

Unit Price
In this model, the project is divided into units and the charge for each unit is
defined. This contract type can be introduced as one of the more flexible
methods compared to fixed price contract.
Usually the owner (contractor/client) of the project decides on the estimates and
asks the bidders to bid of each element of the project.
After bidding, depending on the bid amounts and the qualifications of bidders,
the entire project may be given to the same services provider or different units
may be allocated to different services providers.

This is a good approach when different project units require different expertise to
complete.

Cost Plus
In this contract model, the services provider is reimbursed for their machinery,
labour, and other costs, in addition to contractor paying an agreed fee to the
services provider.
In this method, the services provider should offer a detailed schedule and the
resource allocation for the project. Apart from that, all the costs should be
properly listed and should be reported to the contractor periodically.
The payments maybe paid by the contractor at a certain frequency (such as
monthly, quarterly) or by the end of milestones.

Incentive
Incentive contracts are usually used when there is some level of uncertainty in
the project cost. Although there are nearly-accurate estimations, the
technological challenges may impact on the overall resources as well as the
effort.
This type of contracts is common for the projects involving pilot programs or the
project that harness new technologies.

There are three cost factors in an Incentive contract; target price, target profit,
and the maximum cost.
The main mechanism of Incentive contract is to divide any target price overrun
between the client and the services provider in order to minimize the business
risks for both parties.

Retainer (Time and Material - T&M)

This is one of the most beautiful engagements that can get into by two or more
parties. This engagement type is the most risk-free type where the time and
material used for the project are priced.
The contractor only requires knowing the time and material for the project in
order to make the payments. This type of contracts has short delivery cycles and
for each cycle separate estimates are sent of the contractor.
Once the contractor signs off the estimate and Statement of Work (SOW), the
services provider can start work.
Unlike most of the other contract types, retainer contracts are mostly used for
long-term business engagements.

Percentage of Construction Fee

This type of contracts is used for engineering projects. Based on the resources
and material required, the cost for the construction is estimated.

Then, the client contracts a service provider and pays a percentage of the cost of
the project as the fee for the services provider.

As an example, take the scenario of constructing a house. Assume that the

estimate comes up to $230,000.

When this project is contracted to a services provider, the client may agree to
pay 30% of the total cost as the construction fee, which comes up to $69,000.

Conclusion

Selecting the contract type is the most crucial step of establishing a business
agreement with another party. This step determines the possible engagement
risks.

Therefore, companies should get into contracts where there is a minimum risk for
their business. It is always a good idea to engage in fixed bids (fixed priced)
whenever the project is short-termed and predictable.

If the project nature is exploratory, it is always best to adopt retainer or cost plus
contract types

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Q2. Explain the plan procurement project process.

Q3. State the salient features of FIDIC contract (Silver book).

Q4. a. What are the advantages of firm fixed price contracts?

b. What are the objectives of purchasing?

Q5. Compare ICB and NCB
Q6. Where is a Percentage Rate contracts suitable and List its features
Answer :

(August 2012)
Master of Business Administration - MBA Semester 4
Project Management Specialization
PM 0018 Contracts Management in Projects (4 credits)
(Book ID: B1347)
ASSIGNMENT- Set 2
Marks 60
Note: Each Question carries 10 marks
Q1. Explain the steps that you should follow while evaluating the bids
document
Answer : After you close your competitive bidding process, you can evaluate the
bids received and choose the bid that is the most cost-effective. You may
consider as many factors in your evaluation as you want, but the price of the Erate eligible products and services must be included as a factor and must be
weighted more heavily than any other single factor. Remember that your FCC
Form 470 and your Request for Proposals (RFP), if you issued one, must both
have been publicly available for the same 28-day period as the FCC Form 470
before you can close your competitive bidding process.

If you received one bid, and that bid is cost-effective, you should memorialize
that fact with a memo or email for your records. If you did not receive any bids,
you can solicit bids. If you currently receive service from a service provider, you
can ask your current provider to submit information in response to your FCC
Form 470.

Constructing an Evaluation

To evaluate the bids you receive, you must construct an evaluation. You decide
what factors you want to consider in your evaluation and how important each
factor is to you. You can use as few or as many evaluation factors as you like,
and you can assign percentages or points to the factors you use to reflect their
relative importance. However, you must include the price of the eligible products
and services as a factor and that factor must be weighted more heavily than any
other single factor.

Preparing a Bid Evaluation Matrix helps you evaluate bids and also provides
documentation of the process you followed to select your service provider. You
can receive services:

Under tariff or on a month-to-month basis. Services such as basic

telephone service or Internet access may not require a contract.
Remember, however, that you must post an FCC Form 470 and open a
competitive bidding process for these services each year.
Under a contract. Tariffed or month-to-month services provided under a
contract are considered to be contracted services. Also, internal
connections and basic maintenance products and services are generally
provided under a contract. If you post an FCC Form 470 and sign a multiyear contract resulting from that posting, you do not have to post an FCC
Form 470 or open a competitive bidding process again for the life of that
contract.

Contracts

If you intend to receive services under contract, remember that that contract
must have been preceded by the filing of an FCC Form 470 (NOTE: If you have an
existing contract that was not signed as a result of posting an FCC Form 470, you
can post an FCC Form 470 for the next funding year and consider your existing
contract as a bid response. Remember, however, that you must evaluate any
other bids received as well, and your existing contract may not be the most costeffective solution.). The entity that filed the FCC Form 470 must also have
followed the Schools and Libraries Programs competitive bidding rules and all
applicable state and local contract and procurement rules and regulations.

You can sign a contract, which may be for one or more years and may
include the option of voluntary extensions.

If you are eligible, you can purchase services from a state master contract.
If you are eligible to purchase from a state master contract but that
contract will expire before or during the upcoming funding year, you and
your state should follow the guidance for state replacement contracts.

Next step

Once you have chosen your service provider(s) and signed a contract, if
applicable, you can file an FCC Form 471 to apply for discounts as soon as the
FCC Form 471 application filing window opens.

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Q2. Explain the evaluation criteria that we incorporate in Request For

Proposal(RFP)
Q3. List out standard conditions that must be included in project
construction contracts.

Q4.a. Explain why flexibility in contractor is required for the owner

b. Describe briefly the procedure for arbitration.

Q5. Explain the need of Procurement law and what are its objectives?

Q6. Explain the planning and strategy of acquisition.

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