Contracts can be interpreted in vastly different ways. From verbal contracts, called express contracts, to implied and quasi contracts, project managers need to plan for all possibilities.
When setting up a written contract, there are several basic types to keep in mind:Express contracts
Express contracts are provable in writing. Unlike implied contracts, express contracts have legal standing in the sense that they only take effect once both sides explicitly agree. Typically, express contracts are the starting point of a successful project collaboration.
In a fixed-price contract, the payment made is independent of expenditures. A contractor who agreed to do a job for $100,000 might find material costs have suddenly risen 50%. That has no import on the fixed-price contract. The contractor is still obligated to carry out the work, even at a loss.
In a cost-reimbursable contract, a contractor is reimbursed for all expenses up to a limit and then given an additional fee for service, allowing for a profit in every circumstance. The final payment will fluctuate based on material cost and additionally include a fixed amount, out of which the contractor profits.
Unit price contracts
In unit price contracts, payment is made based on the completion of individual units. Unit price contracts could be executed as fixed-price or cost-reimbursable contracts. For instance, a company could agree to purchase 1,000 units of an item with the understanding that each unit has a fixed price, or that each unit price will consist partially of a variable material cost and partially of a fixed cost.
In a bilateral contract, both parties agree to carry out certain actions. When a company agrees to purchase goods or services, a bilateral contract is signed. The company agrees to accept the goods and services against payment. The vendor agrees to deliver the goods.
In unilateral contracts, only one party agrees to carry out an action. It may be thought of as a promise that can be enforced legally.
How to select?
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