Many times a project is not able to produce everything that is needed to complete the project. When this occurs the project manager becomes the client of another project manager, and the roles are somewhat reversed from their normal state.
The project manager now becomes the purchaser. It is important that the project manager understand the purchasing cycle and the basics of contracting. It is quite easy to find ourselves with a significant problem with no legal protection. Contracts provide us with a formal agreement that is binding between the two or more parties involved and is enforceable by our legal system and the courts.
There are many reasons why we may not wish to produce something ourselves. This is known as making a make-or-buy decision. Many factors affect these decisions.
The contract life cycle is similar to the project life cycle in that requirements are developed, requisitions are generated, vendors are contacted and solicited, and finally one is selected and awarded the contract. Once the award is made, the project manager must manage this contractor just as if the contractor were part of the project team.
There are many types of contracts. The various types of contracts can be explained by considering them in light of risk and who accepts the risk. Fixed-price types of contracts have an agreement to pay a fixed price for some specified good or service. Here the risk is on the side of the seller or supplier. If anything happens that increases the cost of producing the good or service, the seller or supplier must bear the additional cost without being able to increase the selling price to the buyer. In cost-plus types of contracts the buyer is willing to reimburse the seller for any costs that have occurred. The risk of increased cost due to unforeseen problems is borne by the buyer.
When purchasing goods and services for projects, there are many different purchasing arrangements that can be made. Forward buying and blanket ordering are methods that are used to make a mutually beneficial arrangement for both the buyer and the seller or supplier.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.