The moment a project brings in an outside vendor, risk allocation becomes a legal question, not just a planning one. PM4070 teaches project managers to think like informed buyers — understanding which contract type protects the project from cost overruns, and which one shifts that risk onto the seller.
The make-or-buy decision and contract types
PM4070 opens with the make-or-buy decision: should the organization build a capability internally or procure it from an external vendor, weighing cost, available expertise, timeline, and strategic importance. Once a buy decision is made, the course covers the three major contract families — fixed-price (seller bears cost-overrun risk, buyer has price certainty), cost-reimbursable (buyer bears cost-overrun risk, seller is reimbursed for actual costs plus a fee), and time-and-materials (a hybrid used for smaller, less-defined scopes) — and the specific variants within each (e.g., firm-fixed-price vs. fixed-price-incentive-fee).
The procurement life cycle
Students walk through the full sequence: planning procurements (deciding what to buy and which contract type fits), conducting procurements (issuing a request for proposal, evaluating vendor bids against defined criteria, and selecting a seller), controlling procurements (managing the vendor relationship, reviewing deliverables, and processing change orders), and closing procurements (formal acceptance and contract closeout). A recurring theme is that contract type determines risk allocation, and mismatching contract type to project uncertainty is itself a project risk — a fixed-price contract for poorly defined, evolving scope invites disputes and change-order battles.
Key topics in PM4070
- Make-or-buy analysis: cost, expertise, timeline, and strategic-importance factors
- Fixed-price contracts: firm-fixed-price (FFP), fixed-price-incentive-fee (FPIF), fixed-price-economic-price-adjustment (FP-EPA)
- Cost-reimbursable contracts: cost-plus-fixed-fee (CPFF), cost-plus-incentive-fee (CPIF), cost-plus-award-fee (CPAF)
- Time-and-materials (T&M) contracts and when they fit better than fixed-price or cost-reimbursable
- Procurement documents: request for information (RFI), request for quote (RFQ), request for proposal (RFP)
- Vendor selection criteria: weighted scoring models balancing cost, quality, timeline, and past performance
- Contract administration: change orders, claims administration, and procurement closeout
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Worked example: choosing the right contract type
- Scenario: A company needs custom software built, but requirements are still evolving and hard to fully specify upfront
- Fixed-price risk: A firm-fixed-price contract would force the vendor to pad their bid heavily to cover the uncertainty, or lead to constant change-order disputes as requirements shift
- Better fit: Time-and-materials contract with a not-to-exceed cap, paying for actual hours worked while requirements are refined iteratively
- Contrast: For a well-defined, unchanging scope (e.g., "build this exact fence to this exact spec"), a firm-fixed-price contract is the better fit, giving the buyer full price certainty
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Contract-type analyses, vendor-selection case studies, procurement-plan assignments.
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Frequently asked questions
The core difference is who bears the risk of a cost overrun. In a fixed-price contract, the seller agrees to deliver the defined scope for a set price regardless of how much it actually costs them to produce it — if their costs run higher than expected, the seller absorbs the loss, which is why sellers often build in a risk premium when scope is uncertain. In a cost-reimbursable contract, the buyer agrees to reimburse the seller's actual allowable costs plus an additional fee for profit — if costs run higher than expected, the buyer pays more, which is why these contracts require closer buyer oversight of the seller's spending. PM4070 teaches that the choice between them should follow how well-defined the scope is: fixed-price fits clear, stable scope where the seller can accurately estimate costs, while cost-reimbursable fits research-and-development or evolving-scope work where accurate upfront estimation isn't realistic.
A weighted scoring model is a structured technique for comparing competing vendor proposals across multiple criteria that matter differently to the buyer — for example, cost might be weighted at 40%, technical approach at 30%, past performance at 20%, and delivery timeline at 10%. Each vendor's proposal is scored on each criterion (often 1–10), the score is multiplied by that criterion's weight, and the weighted scores are summed to produce a single comparable total for each vendor. PM4070 teaches this model because selecting a vendor on price alone often produces a poor outcome if that vendor is weak on technical capability or reliability — the weighted model forces the evaluation team to make their priorities explicit and documented before scoring begins, which also protects the selection process from being challenged later as arbitrary or biased toward one vendor.