Archival project managers may need to sign contracts with vendors for some project phases or tasks. Reviewing and negotiating contracts is often new territory for archivists, especially for projects which require undertaking new endeavors, developing new skills, and creating unique deliverables.
The type of contract you’re working with will define your budget management behavior. Contracts comprise a statement of work, terms and conditions, deliverables, deadlines, and costs. The three main contract types are: time and materials contracts, cost plus contracts, and fixed price contracts.
Time and Materials Contracts
Time and materials contracts require that activity is tracked, for billing purposes. Time and materials contracts are typically used for the purchase of services, not products. Most time and materials contracts have a fixed duration for a period with an agreed amount to be paid per hour or day. This type of contract is often used when the work cannot be specified, and total costs cannot be reasonably estimated. With this contract, you need to monitor project performance to ensure you are receiving value for your money and obtaining acceptable results in a timely fashion.
Cost-Plus Contracts
Cost-plus contracts are comparable to time and materials contracts. Costs are specified for billing, with the plus factor being a predetermined profit margin that is added above cost. With this contract type, the costs for work completed are reimbursed to the vendor, plus a fee representing agreed upon vendor profit. Incentives may exist for meeting or falling below the agreed costs, schedule, or other performance targets. A cost-plus contract is ideal when scope flexibility is desired. You can redirect your vendor if the scope changes during the project. If you use cost-plus contracts when project risk is high, surprises may emerge that will need to be addressed with a more flexible contract model. Cost plus contracts are the riskiest contracts to use because the vendor may waste resources without financial accountability.
Fixed Price Contracts
Fixed price contracts may not dictate the same cost tracking structure as the previous contract types, but you’ll want to note the spending against the revenue being generated by the contract. It may not require details as with a time and materials contract, but it’s likely that cost elements like procurement or labor costs will be tracked.
Fixed price contracts typically favor you as the buyer, as the vendor needs to commit to the fees upfront for the scope of work. Smart vendors will include a risk-based contingency in their price to cover unexpected costs. Scope changes can be accommodated through a formal change management process. If the change is approved, the contract costs will increase, and project documentation may be adjusted.
With these contracts, the price for the products or services is agreed to up front. You must understand your needs and provide detailed information on what you want to procure. The vendor needs to be specific regarding the products and services they’re offering. It’s possible to establish incentives for meeting or exceeding agreed milestones. In addition, there can be penalties for missed milestones. When creating a fixed price contract, use both incentives and penalties for a balanced approach. Fixed price contracts are best for projects with specific, known requirements.
Reviewing the Terms
No matter what type of contract you decide to use, it’s wise to have an attorney review the terms before you sign it. An attorney can spot problems or unfair or problematic terms before you sign on the dotted line. The time and money invested in a contract review can save you plenty of future pain.
The blog was originally published on Lucidea's blog.
