Understand the different types of contracts available
Project cost management

A contract is a mutual agreement that obliges the seller to supply the specified product and obliges the buyer to pay for it.

Contracts generally fall into one of three broad categories.

• Fixed-price or lump-sum contracts: this category of contract involves a fixed total price for a well-defined product. Fixed-price contracts may also include incentives for meeting or exceeding selected project objectives, such as deadlines.

• Cost-reimbursable contracts: this category of contract involves the payment (reimbursement) to the contractor of its actual costs. Costs are generally classified as direct costs (costs incurred directly by the project, such as the salaries of project team members) and indirect costs (costs allocated to the project by the executing organization as an operating cost,...