This is often used when the project is considered a high risk and there is a fear that the procurement team will not be able to win bidders. This type of contract protects sellers from risks because the supply organization supports them all. There is a clause that states that the seller will be paid for any increase in costs, plus fees that are not based on cost return. For example, the contractor paid all of its costs, plus a $5,000 fee. This is the same as the FFP contract, with the addition of a monetary incentive so that the seller does a better job or finishes the project prematurely. The contact may indicate the fee as well as the conditions of its receipt, para. B example if the project is completed below the estimated cost, before the estimated completion date or in the case of exemplary performance. This contract is best used if you want to make sure the project is completed on time or below cost. In a perfect world, there would be only one type of contract that could be used with anything to keep things simple and effective for everyone involved. Unfortunately, this is not the case, and in the procurement industry, there are several options among the others. Using the right supply contract is critical to the success of a particular project.
Procurement activities are also often divided into two different categories, direct and indirect expenditures. Direct expenses refer to production-related procurement, which includes all items that are part of the finished products, such as raw materials, components, and parts. One approach that has gained increasing momentum in the construction industry and in developing countries is the Selection in Planning (SIP) process, which allows project developers and equipment buyers to significantly change their needs relatively easily. The SIP process also allows suppliers and contractors to respond more accurately and competitively due to the generally longer lead times they are given. Research from the University of Tennessee shows that solution request and association request methods (also known as partner request or partnership request) are also gaining importance as viable alternatives and more collaborative methods for selecting strategic suppliers, especially for outsourcing. The Institute of Supply Management (ISM) defines strategic procurement as the process of identifying sources that could provide the products or services necessary for the acquiring organization. The term procurement is used to map the entire purchasing process or cycle and not just the tactical components. ISM defines procurement as an organizational function that includes specification development, value analysis, supplier market research, negotiation, purchasing activities, contract management, inventory control, traffic, receipt, and business. Procurement refers to the primary function of an organization responsible for the procurement of necessary materials, services and equipment. .