- Project Management

Contract Types in Project Management

Generally speaking, there are two predominant types of contracts for professional services: the “lump sum” fee contract and the “time and materials” (T&M) contract. The former type, also known as the “firm-fixed-price,” typically offers less risk for a client since they know what the bottom line is from the start. The second type, the (T&M) contract, is less risky for the vendor because they get paid for every hour they work, plus allowable reimbursable expenses, such as travel, materials used for the project, and other items. As a consultant, a type of vendor, I prefer “LS” contracts because the scope and schedule are usually laid out in detail at the start of work; this can be a significant issue for many clients.

Contract Types in Project Management

In this world of growing uncertainty, as well as shifting deadlines and greater demands of our time, many clients need the flexibility of the T&M contract to revise the scope as the work progresses or try to move some deadlines and milestones up, and so on. For example, I have been asked to develop a project management office for a new client. However, the scope is currently nebulous because part of our work at PM Workshops (PMW) will include assessing the client’s current situation and then making recommendations for the type and authority level of the proposed PMO. Additionally, staff training is required by the client, as are sufficient templates, guidelines, dashboards, and procedures to assist the staff in their day-to-day work. However, these assessments, which will determine what the client and her staff need, cannot be completed until we are hired and are shadowing the staff and client to see how they work now and what they will need in a PMO to work the way they want to, which is based on their strategic goals,

Although a T&M contract can be very effective, it has some drawbacks. For example, more reporting is usually required since you have to explain how you spent your time, which is not the case in an LS contract. In addition, in an LS contract, the fee is set. How you spend the budget internally is up to the vendor, as long as they meet the client’s requirements as outlined in the mutually agreed upon scope. In contrast, a client is within their right to question the hours a vendor submits each month. All that said, however, a T&M contract has offers a great advantage by allowing a client and vendor to collaboratively work out a scope, as in my current case, as well as have the flexibility to augment or reduce the services provided if they are seen as unnecessary or if there is not enough funding to perform all the work.

Whatever contract you and your client choose to use, even if it is a T&M contract with a flexible and undefined scope, always try to document as much of the work as possible. For example, describe the work you will perform in both types of agreement, including the expected hours. For example, write clear and concise statements, such as: “Project manager shall attend one two-hour weekly meeting for the duration of this contract,” instead of “we will attend weekly meetings.”

Contract Types in Project Management

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