CS411W

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CS-411W

• VII Resource Planning and Allocation
  Contracts and Subcontracts

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Definitions

• Contract - a legally binding exchange of promises
  or agreement between parties that the law will
  enforce
• Subcontract - a contract to perform part or all
  of the obligations of another's contract.

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Definitions (Continued)

• A Sales Contract is a contract between a Seller
  and a Customer.
• The Seller promises to sell products and/or
  services
• The customer in return is agrees (is obligated)
  to pay for the product/services bought.
• A Purchasing Contract is a contract between a
  Buyer and a Supplier.
• The Buyer promises to procure products of
  services for an agreed set of terms (price,
  delivery time, payment terms)
• The Seller promises to sell products and/or
  services and is obligated to hold to the agreed
  terms

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Contract Why Important

• Legal binding document - between parties
• Identifies critical requirements
• List potential or known resources
• Establishes costs - contract fee
• Describes deliverables
• Establishes milestones - deliverable dates
• Describes potential methods of performance

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Contract Concepts

• Principle based on the Latin phrase pacta sunt
  servanda (literally, promises must be kept)
• important feature of a contract is that one party
  makes an offer for a bargain that another accepts
  
• Can be written (buying a house) or oral (ordering
  lunch) both equally binding value of
  transaction typically dictates when written form
  is necessity (any contract for sale of goods for
  500 or more must be in written form in the USA)
• Written form is binding in terms once signed
  regardless of whether is was read or understood
  by all parties (as long as the agreement is
  legal)

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Contract Common Terms

• Terms and Conditions The collection of Clauses
  which, together, establish the basis and details
  of a contractual agreement
• Venue - Establishes the Governing Law under
  which contract disputes will be resolved
• Effectivity the conditions dictating when or
  how the contract will come into effect (date,
  action/milestone, etc.)
• Validity - contract is invalid and void if it is
  based on an illegal purpose or contrary to public
  policy

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Contract Common Terms

• Breach of contract - a legal concept in which a
  binding agreement not honored by one or more of
  the parties to the contract
• by failure to perform or
• by failure to comply with the Terms and
  Conditions of the contract.
• Liquidated Damages defined by the contract as
  the agreed schedule of compensation to be paid by
  one party if the other party should breach the
  contract

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Contract Common Terms

• Force majeure (French for "greater force")
• A common clause in contracts which essentially
  frees one or both parties from liability or
  obligation
• Invoked due to extraordinary events or
  circumstances beyond the control of the parties,
  such as war, strike, riot, crime, act of God
  (e.g., flood, earthquake, volcano)
• The occurrence of the event prevents one or both
  parties from fulfilling their obligations under
  the contract.

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Types of Contracts

• Fixed Price - you are paid a fixed amount to
  perform no matter what it may actually cost you
  (higher risk, higher profit potential)
• Fixed price 1,000,000
• Total Paid to Seller 1,000,000
• Fixed Price with incentives - better-than-expecte
  d performance (higher quality, faster delivery)
  is rewarded with additional profit ()
• Fixed Price 1,000,000
• Incentive Fee 10
• Maximum Paid to Seller 1,100,000

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Types of Contracts

• Cost Plus fixed fee all of your costs are
  reimbursed plus a fixed profit (little risk of
  loss, smaller profit percentage)
• Budgeted costs 1,000,000
• Budgeted Profit (10) 100,000
• Actual Costs 1,500,000
• Actual Profit 100,000 (6.7)
• Cost Plus fixed fee with incentives more profit
  possible for better-than-expected performance
• Same as above with Incentive fee 10,000
• Maximum Profit 110,000

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Types of Contracts

• Time and Materials Fixed amount is paid for
  individual quantities of time (labor) and
  materials risk is in keeping labor and material
  costs within fixed bounds. Saving labor/materials
  costs yields more profit
• Budgeted labor (with 10 profit) 10 hours _at_
  22/hour 220
• Budgeted material (with 10 profit) 220
• Budgeted total profit 40
• Contract value 400
• Actual Labor Cost at completion 10 hours
  _at_18/hour 180
• Actual Material Cost 125
• Total Cost 305
• Labor Costs reimbursed 10 hours _at_ 22/hour
  220
• Materials reimbursed (with 10 profit) 137.50
• Total paid to seller 357.50
• Total profit 52.50
• Labor 40
• Material 12.50

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Types of Contracts

• Cost Plus fixed fee all of your costs are
  reimbursed plus a fixed profit (little risk of
  loss, smaller profit percentage)
• Cost Plus fixed fee with incentives more profit
  possible for better-than-expected performance

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External Resources (Subcontractors)

• Why Use Subcontractors
• Lack of internal capability (subcontractor
  required for unique expertise)
• Time limitations (availability of internal
  resources insufficient to meet schedule)
• Cost limitations (sometimes using subcontractors
  can save cost of internal training or skills
  development)
• Better solution available via some outside
  resources (no need to reinvent)

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Subcontract Example

• Prime Contractor (Buyer) XYZ Corporation
• Subcontractor (Seller) Greenwich Limited
• Product/capability Bubble Detector and Popping
  Processor