Disadvantages of Procurement Contract
Procurement contracts provide many benefits. However, there are some drawbacks associated with them as well. It’s important for project managers to be aware of these potential drawbacks:
- Complexity: Large projects may also be extremely complicated, when it comes to drafting and managing contracts, which could require a lawyer’s help or consultation.
- Administrative Burden: Administrative overheads are associated with paperwork, documentation and contractual terms that are involved in managing and administering contracts.
- Limited Flexibility: The rigidity of fixed contract can cause problems in case there are unexpected situations or changed requirements for the project.
- Cost Overruns: Buyers may face the problem of overspending in cost-reimbursement contracts unless they actively monitor the expenditures.
- Contractual Ambiguities: Contracts which are poorly worded or contain vague terms may give rise to disputes during the implementation of a contract.
- Limited Innovation: While the application of strict contractual terms might help ensure that a certain desired performance output is delivered by a vendor, it may prevent the introduction of novel ideas or technologies leading to the innovation of the supplier.
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What is Procurement Contract in Project Management?
A procurement contract is an approved agreement between a buyer (the organization or person undertaking the project) and a seller (vendor or supplier) in which the buyer acquires supplies. These are essential contracts for projects that involve external sources, expertise, or materials. Many kinds of procurement contracts possess their particular attributes. For example: A fixed-price Contract, where the company is paid to construct an office building worth five million dollars for a fixed total price amount. The contract states that the constructor must complete the project under the specified scope and any extra incurred expenses are the responsibility of the contractor.
Table of Content
- Key Elements of Procurement Contract
- Types of Procurement Contract
- Advantages of Procurement Contracts
- Disadvantages of Procurement Contract
- Conclusion