Navigating Contracts in Project Management With CLM Software

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    CobbleStone Software explains navigating contracts in project management with CLM software.

    Project management is an intricate dance of planning, executing, and overseeing projects to ensure they are completed efficiently and effectively. At the core of this process are project management contracts. These vital documents delineate the terms and conditions, scope, and roles and responsibilities for a project - hopefully ensuring that all parties involved have a clear understanding of the expectations. There are various types of contracts in project management that cater to the unique needs and requirements of each project. However, managing these contracts ineffectively can lead to cost overruns, delayed timelines, poor quality of work, legal issues, damaged relationships between involved parties, and other deleterious consequences. Thankfully, an understanding of project management contracts - along with the right solution to manage them - can help drastically.

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    Types of Contracts for Project Management

    Let's explore three overarching types of contracts that project managers encounter on a daily basis:

    1. Fixed Price Contracts (Lump Sum Contracts)
    2. Cost Reimbursable Contracts
    3. Time and Materials Contracts


    Fixed Price Contracts

    One common type of project contract is the fixed price (FP) contract. In this agreement, the service provider agrees to complete the project for a fixed price. While this contract type can be advantageous for the client, it may pose a risk for the service provider if the project exceeds the estimated scope and costs.

    Fixed-price contracts can be better managed with contract management software. It allows project contract professionals to:

    • automate document drafting with the merging of standard fixed price agreement templates with clauses and metadata.
    • track project scope (timeline, budget, assigned tasks, project stakeholders) with metadata fields, automated alerts, and reporting features.
    • and manage changes.

    This contract lifecycle management software allows contract managers to mitigate and map risks, facilitate seamless communication about costs and scope, track regulatory and industry-specific compliance, and maintain a comprehensive audit trail of document management and contract processes for transparency.


    Cost Reimbursable Contracts

    The cost-reimbursable (CR) contract, another common agreement in project management, is perhaps characterized by its flexibility. The client agrees to cover the project’s costs and - typically - a fee for the service provider’s profit. This type of cost-plus contract is often used in projects where the scope is uncertain or expected to fluctuate.


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    There are several different types of cost-reimbursable agreements, including:

    1. Cost Plus Fixed Fee (CPFF): The contractor is reimbursed for allowable costs and paid a fixed fee. This fixed fee does not change unless the project scope does. These types of agreements are best managed with contract management software features such as budget tracking to monitor costs incurred, automated document editing with version tracking and redlines to ensure fees and timelines are adjusted accordingly, and ad-hoc reports to detail financial information at a glance.

    2. Cost Plus Incentive Fee (CPIF): The contractor is reimbursed for allowable costs and paid an additional incentive fee for meeting or exceeding specified performance metrics. Ad-hoc reports and dashboards in contract software allow project managers to track contract management KPIs, track incentive distribution, and analyze data for future processes.

    3. Cost Plus Award Fee (CPAF): This agreement is similar to the cost plus incentive fee, but there are key differences. The award amount is not predetermined in the CPAF contract and is instead determined by the owner while evaluating the contractor's performance. Conversely, the incentive amount in the CPIF is predetermined in the contract based on achieving certain performance goals agreed upon during contract negotiation.

    A unit price contract is somewhat of an amalgamation of the cost-reimbursement contract and the fixed-price contract mentioned above. Payments are made based on the number of units completed (e.g. construction of a certain number of miles of a highway). Contract lifecycle software features such as line items tracking of units and associated costs and billing - along with performance tracking of timelines - can greatly streamline the management of unit contracts.


    Time & Materials Contracts

    In a time and materials contract, the client agrees to pay the contractor based on the time and materials used for the project. It’s often utilized in smaller projects or when the scope of the project is not well-defined. The contract will often include a clause that specifies an "upper limit" or a "not to exceed..." ceiling to control costs and protect the client's interests.

    Time and materials contracts can be successfully managed with contract management software. Time spent on project tasks can be tracked with workflow automation - complete with alerts and due dates to keep the process moving. Materials used can be recorded as line items on a tidy contract metadata screen. Contract lifecycle time can be tracked with reporting and analytics to gain a broader picture of project turnaround.


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    Deeper Into Project Contract Management Success Tools

    The contract types and tools above illustrate the diverse nature of contracts in project management. Each type has its unique use cases and challenges, and selecting the appropriate project management contract agreement is pivotal to the project’s success.

    Managing these contracts can be complex and intricate. This is where contract management software becomes invaluable. This innovative technology streamlines the administration of various contract types in project management, helping promote efficiency and compliance. For example, an organization managing an IT project contract can track and manage the project's deliverables, timelines, and budget. Contract management software virtually ensures that all parties adhere to the stipulated terms and conditions - reducing risks and enhancing productivity.

    Contract management software is equipped with features that cater to the different types of contracts in project management, but it also features functionality to help teams manage all types of contracts in general, such as automated alerts for milestones or deadlines, electronic and digital signatures for quick approvals, and a centralized database for easy access to contract documents, metadata, and more.


    The Key Takeaway

    In conclusion, understanding the types of contracts in project management with examples and effectively managing them is integral to PMP contracting excellence. Contract management software stands as a powerful ally for project managers - offering automated, efficient, and streamlined solutions for handling various contracts. In the dynamic landscape of project management, where adaptation and efficiency are key, these technological solutions prove essential.

    To see how to better manage project management contracts in action, book a free demo of CobbleStone Contract Insight® today!







    *Legal Disclaimer: This article is not legal advice. The content of this article is for general informational and educational purposes only. The information on this website may not present the most up-to-date legal information. Readers should contact their attorneys for legal advice regarding any particular legal matter.

    Published: 10/12/23
    Sean Heck

    Written by Sean Heck

    Sean Heck is Content Marketing Manager at CobbleStone Software

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