This is really involves a wide topic but i need to remember that categorized type of contracts. Because sometimes we need to know notations about contracts in our business life. There are three main categories about contracts;

  • Fixed Price Contracts
  • Cost Reimbursable Contracts
  • Time and Materials Contracts

Fixed Price Contracts :

Fixed Price (FP) Means that you are going to pay one amount regardless of how much it costs the contractor to do the work. Seller has maximum risk.
Fixed Price Plus Incentive (FPIF) Means that you are going to pay a fixed price for the contract and give a bonus based on some performance goal.
Firm Fixed Price (FFP) Means that you are going to pay a limited fee for limited service or product. Contractor has maximum risk.


Cost Reimbursable Contracts :

Costs plus fixed fee (CPFF) Means that you pay the seller back for the costs involved in
doing the work, plus you agree to an amount that you will pay on top of that
Costs plus award fee (CPAF) It is similar to the CPFF contract, except that instead of paying a fee on top of the costs, you agree to pay a fee based on the buyer’s evaluation of the seller’s performance.
Costs plus incentive fee (CPIF) Means you’ll reimburse costs on the project and pay a fee if some performance goals are met.


Time and Materials Contracts :

Time and Materials (T&M) is used in labor contracts. It means that you will pay a rate for each of the people working on your project plus their materials costs. The “Time” part means that the buyer pays a fixed rate for labor—usually a certain number of dollars per hour. And the “Materials” part means that the buyer also pays for materials, equipment, office space, administrative overhead costs, and anything else that has to be paid for. The seller typically purchases those things and bills the buyer for them. This is a really good contract to use if you don’t know exactly how long your contract will last, because it protects both the buyer and seller.

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