Understanding contracts

Question 1

What is a contract in project management?

Answer 1

A contract is a mutually binding agreement that obligates the seller to provide a specific product or service and the buyer to provide monetary or other valuable consideration.

Question 2

What is the primary focus of procurement in project management?

Answer 2

Procurement focuses on contracts and their administration.

Question 3

What is the Statement of Work (SOW)?

Answer 3

The SOW is a key document that defines the scope of work, including tasks to be completed, who will perform them, and the deliverables.

Question 4

Why is it important for a project manager to understand different contract types?

Answer 4

Understanding different contract types helps the project manager select the appropriate contract for the project type, considering benefits, advantages, and disadvantages.

Question 5

Who is considered the buyer in a project management contract?

Answer 5

The project manager is considered the buyer.

Question 6

Who is the seller in a project management contract?

Answer 6

The contractor is the seller.

Question 7

How do we specify our needs to the seller?

Answer 7

We use the scope to specify what is to be provided, this includes:
* Specification of the technical requirements (what we want them to do)
* Milestones
* Deliverables/artifacts
* Constraints (payment terms)
* What we deliver and when

Question 8

What is a major effort in preparing a contract?

Answer 8

A major effort is creating the Statement of Work (SOW), which outlines the tasks, responsibilities, and administrative procedures.

Question 9

What should be included in the SOW?

Answer 9

• Contract type
• Tasks to be performed and by whom
• Milestones, deliverables and payment schedule
• Administrative procedures and acceptance criteria
• OPAs

Organizational process assets are existing documents and templates that can be referenced in the SOW to save time and ensure consistency.

Question 10

What are acceptance criteria?

Answer 10

Acceptance criteria define the conditions under which a deliverable is considered complete, such as the definition of done in adaptive projects or acceptance tests in predictive projects.

Question 11

Why is it important to reference other documents in the SOW?

Answer 11

Referencing other documents helps avoid duplication of information, which can lead to errors if changes occur.

Question 12

How does the scope of work affect the type of contract?

Answer 12

The clarity and detail of the scope of work determine whether the contract can be well-defined or poorly defined, impacting the risk associated with the contract type.

Question 13

What are the two main types of contracting?

Answer 13

• Centralised contracting
• Decentralised contracting

Question 14

What is centralized contracting?

Answer 14

Centralized contracting is when all contract management is handled in one place, typically by a centralized legal department.

Question 15

Advantages and disadvantages of centralised contracting

Answer 15

Advantages:
* Expertise (is in one place)
* Standards, policies and procedures
* PM freed up

Disadvantages:
* Less access
* Delays (perform according to thier prioirities rather than individual projects)
* Staff turnover (need to inform newcomers of the project)

Question 16

What is decentralized contracting?

Answer 16

Decentralized contracting occurs within the project, allowing the project manager to have more control and quicker access to contract management.

Question 17

Advantages and disadvantages of decentralised contracting

Answer 17

Advantages:
* PM controls the work
* Dedicated staff
* Available

Disadvantages:
* PM additional work
* Limited experience

Question 18

How can a project manager ensure effective communication with the contractor?

Answer 18

By establishing clear reporting procedures and acceptance criteria in the SOW, the project manager can facilitate effective communication.

Question 19

What is the significance of payment terms in a contract?

Answer 19

Payment terms specify when and how much the buyer will pay the seller, which is crucial for managing cash flow and expectations.