Feb 04, 2021

What are the 3 Types Of Procurement Contracts?

What are the 3 Types Of Procurement Contracts?

For any deal that’s done between two organisations, a contract needs to be drawn up. In the case of one organisation buying goods or services from another, a procurement contract is required. So, what is a procurement contract?

Put simply, a procurement contract is a document that details the legally binding agreement between a buyer and seller. The purpose of a procurement contract is to delineate the rights and duties of each party. Upon signing a procurement contract, the supplier will be contractually obligated to fulfil its terms – usually with regards to quantities, quality of goods and timeframes for delivery. The buyer, in return, is obligated to acknowledge receipt of goods or services and pay for them.


If only things were so simple!


Though the overarching purpose is the same, there are in fact multiple types of procurement contract to choose from when thrashing out a deal with a vendor.

Generally, these can be broken down into three categories:


  1. Fixed Price Contracts
  2. Cost Reimbursable Contracts
  3. Time and Materials Contracts 


There are, however, subtypes of each main type of contract. It’s crucial that project managers and procurement professionals understand the differences as using the right procurement contract is crucial to the success of any given project.

Ultimately, the onus is on procurement management to select the contract that satisfies the organisation’s requirements. Let’s look at the different types of procurement contract and consider when it’s best to use each of them.




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